Westpac will pay a $35 million civil penalty after admitting it had breached responsible lending obligations for home loans.
The Australian Securities and Investments Commission had launched action over 10,500 loans that should not have automatically been approved.
Australia’s second biggest lender will also have to cover the regulator’s legal and investigation costs to settle the case.
The penalty is the largest civil penalty awarded under the National Credit Act.
Consumer protections under the National Credit Act ensure that credit providers make reasonable inquiries about a borrower’s financial situation. They also have to verify the information that they obtain and assess whether a loan contract will be unsuitable for the borrowers.
Westpac admitted d to either failing to collect the necessary customer data or incorrectly calculating customers’ ability to repay loans in relation to about 100,000 home loans from 2011 to 2015,
Westpac had used the Household Expenditure Measure (HEM) — a relatively low estimate of basic living expenses — to calculate potential borrowers’ living costs instead of actually evaluating what the customers could afford by looking at their declared living expenses.
This was in breach of the National Consumer Credit Protection Act.
It also meant that customers were being approved for home loans they potentially could not afford to repay without financial hardship.
ASIC said Westpac had failed to use the higher repayments at the end of the interest-only period when assessing a consumer’s capacity to repay the loan. It gave the example where the assumed repayment using the incorrect method was $2758 per month for a loan of $500,000 at 5.24% with a term of 30 years and a 10-year interest-only period when actual repayment after the expiry of the interest-only period using the correct method was $3366 per month.
“This outcome, and ASIC’s actions in relation to responsible lending, reinforce that all lenders must obtain information from individual borrowers about their financial situation to ensure that they can properly assess the ability of the customer to repay the loan,” ASIC chair James Shipton said.
“Lenders must then verify the information to ensure that it is true, and then assess whether the loan is unsuitable for the borrower. Taken together, these responsible lending obligations are a cornerstone protection for both borrowers and lenders.”