Westpac will pay a $35 million civil penalty in a settlement with the corporate regulator, after ASIC took action against the bank in relation to alleged breaches of its responsible lending obligations.
The bank is alleged to have contravened consumer credit protection laws, relating to around 10,500 home loans it approved through an automated decision making process between December 2011 and March 2015.
The Australian Securities and Investments Commission (ASIC) alleged Westpac did not properly assess the capacity of individuals to repay home loans by using a benchmark metric, the Household Expenditure Measure, to assess living expenses.
The case, which was launched by ASIC last year, was due to go to trial in the Federal Court this week.
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If the settlement is approved by the Federal Court it will be the largest civil penalty awarded under national credit protections that came into effect in 2009.
In a statement, ASIC chair James Shipton said the penalty would send a “strong regulatory message” to the banking industry, which has been the subject of a flurry of scandals recently amid a royal commission into misconduct in the banking sector.
“This is a very positive outcome and sends a strong regulatory message to industry that non-compliance with the responsible lending obligations will not be tolerated,” Shipton said.
“Responsible lending in the home lending market is absolutely vital to consumers, banks and our economy.”
In a response to the settlement lodged to the Australian Securities Exchange on Tuesday afternoon, Westpac chief executive of consumer banking George Frazis said that the bank upgraded its credit assessment in 2015.
“Westpac takes its responsible lending obligations very seriously and this action does not relate to our current lending practices,” he said in a statement.
Westpac also acknowledged its automated assessment did not calculate loan repayments for home loans to owner-occupiers based on estimated repayments applied after the interest only period had finished.
ASIC alleged this meant that Westpac did not properly assess the ability of borrowers to repay both the principal and interest portions of loans after the interest-only period ended.
Westpac said it approved over 250,00 home loans during the period subject to ASIC’s investigation, of which it acknowledged that around 10,500 should have been referred for manual assessment.