Westpac accepts record penalty
WESTPAC will pay a $35 million fine after admitting it failed to properly assess whether home loan customers could repay their debts.
The banking heavyweight yesterday acknowledged to the corporate cop, the Australian Securities and Investments Commission, that it breached responsible lending obligations. Westpac conceded that its automated lending systems ignored living expenses declared by prospective home loan customers.
The fine, if approved by the Federal Court, will be the biggest civil penalty yet awarded under the National Credit Act.
It is another humbling blow for the Australian banking industry as a succession of misconduct cases is exposed by the financial services Royal Commission.
Lawyers for Westpac and the regulator have approached the Federal Court seeking orders that the lender contravened the responsible lending provisions of the credit Act. Westpac settled the matter as a trial between it and the watchdog was due to start in the Federal Court next Monday.
ASIC chair James Shipton said the outcome was a warning to all other lenders that they had to comply with rules on responsible lending.
“If they do not, ASIC will take action to enforce the law,” Mr Shipton said in a statement.
Westpac has acknowledged its “automated decision system” reverted to generic benchmarks when deciding if prospective borrowers were capable of repaying loans.
Australian banks have been criticised at the Royal Commission for their use of the socalled Household Expenditure Measure benchmarking system. Under the system, wouldbe borrowers are assessed based on statistical averages for people in their demographic set — for example, age bracket and suburb.
Westpac used such benchmarks rather than assessing the actual living expenses declared by customers. The system also failed to account for the higher repayments owner- occupiers with interest-only loans would face at the end of their interest-only periods.
About 260,000 home loans were approved by Westpac’s automated decision system between December 2011 and March 2015.
ASIC detailed the offences yesterday, saying that, for about 50,000 home loans, Westpac received but did not use consumers’ actual expense information, despite the fact it revealed their expenses were higher than the Household Expenditure Measure indicated. For about another 50,000 home loans, Westpac also used incorrect methods when assessing a consumer’s capacity to repay a home loan at the end of the interest-only period.