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  • Westpac broke law 261,987 times: ASIC
  • By Misa Han
  • 06/05/2019 Make a Comment
  • Contributed by: SpongeBob ( 7 articles in 2019 )
Westpac breached responsible lending laws more than 250,000 times by throwing away customers' self-reported expenses and using a frugal measure of household expenses, the corporate regulator alleges.

In 2017, the Australian Securities and Investments Commission took the big four bank to the Federal Court, alleging it had breached responsible lending laws between 2011 and 2015 when it used a benchmark instead of the actual expenses declared by customers in assessing their ability to repay their home loans.

ASIC and Westpac tried to settle the matter, with the bank agreeing to pay a $35 million fine last year, but the matter is back in court this week after the court refused to rubber-stamp the settlement.

In addition, Westpac faces the allegation it breached responsible lending laws 154,351 times by failing to assess customers' ability to meet the higher repayments when interest-only periods expired.

The case is significant because it will clarify what steps banks must take to meet responsible lending requirements.

All the big four banks have since moved away from solely relying on the household expenditure measure (HEM) benchmark. Now they use the higher of the HEM benchmark or the customers' self-declared expenses.

In an opening submission on Monday, barrister for ASIC, Jeremy Clarke, SC, told the court Westpac breached responsible lending laws 261,987 times because it used a conservative benchmark to automatically approve home loans.

Mr Clarke said the law required the bank to assess customers' financial positions against the repayments they were required to pay.

He said the bank should have used the customers' self-reported expenditure data to assess their ability to repay home loans.

"ASIC does not say the HEM benchmark can't be used in some respect," he said.

"[But] what the bank can't do is get the [customer] information and throw it away and just substitute it with the HEM benchmark."

Justice Nye Perram asked whether the HEM benchmark could be used to pinpoint where customers might encounter financial hardship, because some customers might be able to cut back on non-essential items such as holidays in exotic resorts and business class flights in order to make mortgage repayments.

"There may be a lot of fat on the lamb," Justice Perram asked.

However, Mr Clarke said the HEM benchmark was a "generic figure" that did not take into account individual circumstances.

Mr Clarke said whether expenses could be cut would depend on individual circumstances. For instance, some customers might not want to cut back on their children's school fees or change the level of car they drove, he said.

He said the HEM was a frugal measure. He said the HEM benchmark for a family with two dependents was "extraordinarily similar" to the Henderson Poverty Line, which estimates the expenses of households living in poverty.

He added individual households might have medical expenses, school and childcare fees, payments for elderly family members and pets and transport and car expenses that they could not easily cut back on.

However, Jeremy Kirk, SC, barrister for Westpac, said in his opening submission that responsible lending laws did not require banks to use a simplistic formula of income minus expenses in assessing customers' ability to repay home loans.

Mr Kirk said such a formula reflected a "19th-century approach" and Westpac used a "21st-century system" that was "complex, multifactorial, [and] sophisticated".

He added the use of HEM was relevant because often customers had a limited understanding of what their expenses were.

The hearing before Justice Perram continues.

Source: https://www.afr.com/real-estate/residential/westpac-broke-law-261-987-times-asic-20190506-p51ke6


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