The Australian Securities and Investments Commission (ASIC) has asked the Federal Court to impose a $35 million civil penalty on Westpac Banking Corporation for breaching its responsible lending obligations when providing home loans. If approved by the court, this will be the largest ever civil penalty under the National Consumer Credit Protection Act 2009 (National Credit Act) and nearly double the previous record penalty for a National Credit Act breach.
ASIC announced the outcome today, with Westpac admitting breaching the National Credit Act. In doing so, ASIC has successfully held Westpac to account for failing to properly assess whether borrowers could meet their repayment obligations before entering into home loan contracts.
In March 2017, ASIC announced it was commencing civil proceedings in the Federal Court against Westpac for breaching its responsible lending obligations when providing home loans, including:
- using a benchmark instead of the actual expenses declared by borrowers in assessing their ability to repay the loan;
- approving loans where a proper assessment of a borrower’s ability to repay the loan would have shown a monthly deficit; and
- for home loans with an interest-only period, failing to have regard to the higher repayments at the end of the interest-only period when assessing the borrowers’ ability to repay.
Approximately 260,000 home loans were approved by Westpac’s automated decision system during the December 2011 to March 2015 period which was the focus of ASIC’s allegations.
This kind of conduct is completely unacceptable and why we have laws in place to protect consumers from being put at risk of being in unaffordable home loans.
The Coalition Government has undertaken significant reforms to ensure that ASIC has the resources and powers it needs to combat misconduct in the financial services industry and across all corporations for the protection of Australian consumers. This includes:
- injecting a further $70.1 million into ASIC to boost its enforcement capabilities and address other regulatory priorities, in addition to $121.3 million in additional funding in 2016 to bolster ASIC’s investigative and surveillance capabilities;
- the appointment of Daniel Crennan QC as a new Deputy Chairperson who has a key focus on enforcement action; and
- announcing the strengthening of criminal and civil penalties by increasing terms of imprisonment and fines, increasing the maximum civil penalties that can be imposed by courts and allowing ASIC to strip wrongdoers of profits illegally obtained, or losses avoided, from contraventions of the law.
These reforms support ASIC’s new Chair James Shipton’s approach to refocus ASIC’s strategic direction on proactive enforcement and increase onsite supervisory approaches.
The Morrison Government will continue to ensure ASIC is equipped with the resources and powers it needs to effectively detect, deter and punish those who do the wrong thing, to improve community confidence and outcomes for consumers and investors in the financial services and corporate sectors.