On 1 March 2017, ASIC commenced Federal Court proceedings against Westpac to test the responsible lending provisions of the National Consumer Credit Protection Act 2009 (Cth) (the Act) (17-048MR). The matter was heard in May 2019 and today Justice Perram handed down his decision.
The Act requires lenders to assess whether loans will be unsuitable for consumers. ASIC alleged that Westpac’s automated assessment system used a benchmark (the Household Expenditure Measure or HEM) for consumer expenses and did not have regard to the actual expenses provided by the consumer and was therefore in breach of its obligations. Further, in assessing home loans with an interest-only period, ASIC alleged that Westpac was required to have regard to the higher repayments at the end of the interest-only period and did not do so.
In his judgment today, Perram J found that a lender “may do what it wants in the assessment process” and that other provisions of the Act impose penalties if lenders make unsuitable loans as a result of that process.
Perram J also found that Westpac did take account of consumers’ declared living expenses because another rule in Westpac’s system compared declared living expenses to income (but leaving out other expenses including the repayments under proposed loan) was a measure of suitability.
‘ASIC took on the case against Westpac because of the need for judicial clarification of a cornerstone legal obligation on lenders, this is why ASIC refers to this case as a ‘test case’. As a regulator, it is our role to test the law and its ambit. The obligation to assess loan applications builds on the requirement for banks to make inquiries about a borrower’s financial circumstances and capacity to service a loan and to verify the information that borrowers give banks.
ASIC is reviewing the judgment carefully,’ said ASIC Commissioner Sean Hughes.
ASIC is currently undertaking a process to update its responsible lending guidance. In part, this is to reflect and incorporate court decisions since ASIC’s guidance was last updated, as well as changes in market practices, conditions and the availability of data accessibility and analytics tools. As is ASIC’s usual practice, we will carefully consider the Court’s determination and how this may impact our guidance. Further information: 19-163MR.
Read the full judgment here.