Court gets to meat of lending issue

HOME buyers could swap Wagyu beef for “more modest fare”, so expenses they declare in mortgage applications don’t necessarily reveal if they can repay their loans, the Federal Court says.

The finding forms part of a far-reaching judgment handed down by the court in dismissing a landmark case over responsible lending brought by the corporate cop against Westpac.

Handed down yesterday, the ruling rejects the idea credit laws compel a lender to use borrowers’ self-reported expenses when assessing if they can repay their loans. The Australian Securities and Investments Commission has been pushing banks to give more consideration to each individual’s circumstances rather than relying on general expense benchmarks when writing loans. Consumer rights organisations yesterday criticised the Federal Court’s ruling and said the nation’s credit laws needed to change so they forced lenders to verify each borrower’s actual financial situation.

ASIC alleged Westpac breached responsible-lending laws almost 262,000 times when it provided home loans between December 2011 and March 2015. ASIC alleged Westpac only used a general living expenses benchmark in working out whether potential borrowers could repay loans.

In the most significant ruling for the financial sector, Justice Nye Perram found selfdeclared expenses were not a bulletproof formula for assessing if borrowers could pay back their loans. As an example he singled out food.

“I may eat Wagyu beef everyday washed down with the finest shiraz but, if I really want my new home, I can make do on much more modest fare,” he said. “(The fact) there are living expenses is not necessarily relevant to whether a consumer will be unable to comply with their loan obligations.”