In Australian Securities & Investments Commission v Westpac Banking Corporation [2018] FCA 1733 Justice Perram of the Federal Court refused to approve a $35 million penalty for Westpac despite a statement of agreed facts in which Westpac admitted it should not have automatically approved 10,877 home loans and that applications for those loans should have been referred for manual assessment by a Westpac credit officer to determine whether the loan was unsuitable. Background.
The case has not made any new law about responsible lending other than to say that if ASIC and a lender want to submit a settlement for court approval the parties need to point to a loss to which the proposed penalty relates.
Justice Perram said at para 16 that there were :
“…5,041 loans where the HEM Benchmark’s use in preference to declared living expenses would have made a difference. In these cases, the declared expenses were more than the HEM Benchmark and, if those expenses had been used instead of the HEM Benchmark, a flag would have been triggered and the customer’s application would not have been approved without referral to manual assessment. What would have happened after that manual assessment the parties have not told me. Nor have they told me whether any of these 5,041 loans were, or were not, suitable for the borrowers. This also undermines the ability of the Court to assess the reasonableness of the agreed penalty. Were the contraventions technical and harmless because the loans were suitable? Or, has significant harm been done to some or all of the 5,041 borrowers by the making of unsuitable loans? How can the Court be expected to assess the reasonableness of the proposed penalty if it be left in the dark about what the actual problem is?”
Justice Perram did not make a decision about the required method of assessment or the use of benchmarks.
It is not clear whether, if there had not been a settlement and the matter proceeded to trial, ASIC would have been able to supply the missing evidence for a representative number of the 5041 affected loans.
It is not clear how the case will now be resolved.
