Responsible Lending – ASIC, Westpac and The Federal Court
The Federal Court of Australia, New South Wales | NSD293/2017 | Australian Securities & Investment Commission v Westpac Banking Corporation ACN 007 457 141.
In an opening submission on Monday, 6 May 2019 barrister for ASIC, Jeremy Clarke, SC, alleged that Westpac breached responsible lending laws 261,987 times between 2011 and 2015.
The Court heard that Westpac should have used the customers’ self-reported expenditure data rather than the HEM benchmark which was "extraordinarily similar" to the Henderson Poverty Line, which estimates the expenses of households living in poverty.
Jeremy Clarke, SC, said “What the bank can't do is get the customer information and throw it away and just substitute it with the HEM benchmark."
On Tuesday, 7 May 2019, Westpac's barrister Jeremy Kirk, SC, fired back at ASIC saying that the bank acted in "good faith" to meet its Responsible Lending obligations.
By any means of any imagination Westpac’s actions is not a proper and fit way to meet the Responsible Lending obligations of the National Consumer Credit Protection Act 2009.
Westpac may not be the only lender that ASIC may be able to make similar allegations against, as well as mortgage brokers.
The National Consumer Credit Protection Act 2009 contains responsible lending obligations for credit licensees such as banks, credit unions, small amount lenders, finance companies, mortgage and finance brokers.
The primary obligation is to conduct and Assessment, and the credit licensee must –
- Make reasonable enquiries about the consumer’s financial position; and
- Make reasonable enquiries about the consumer’s requirements and objectives; and
- Take reasonable steps to verify the consumer’s financial situation; and
- Take any steps prescribed by the regulations to verify any matter prescribed by the regulations, s117 and 140.
The Federal Court’s judgement is very important because it may draw attention to other possible breaches of the Responsible Lending obligations of the Act such as –
- The conversion of investment loans to owner occupied loans by simply asking for proof of change of address on a driver license and a utility bill – without making an Assessment on the impact of the loss of rental income from the converted property from investment to owner occupied and any changes in the consumers financial position.
- The sale of an owner occupied or investment property or both and partial discharge of mortgage without making an Assessment on the impact of such a sale and partial discharge of mortgage and loss of rental income and any changes in the consumers financial position.
- The serviceability calculator used by at least one lender may be found deficient in calculating loan affordability.
For the record, the National Consumer Credit Protection Act 2009 (Commonwealth) and the Responsible Lending obligations of the Act have not changed since 2009.
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