On 1 March 2017, ob体育 commenced Federal Court proceedings against Westpac to test the responsible lending provisions of the National Consumer Credit Protection Act 2009 (Cth) (the Act) (17-048MR). The matter was heard in May 2019 and today Justice Perram handed down his decision.
The Act requires lenders to assess whether loans will be unsuitable for consumers.聽 ob体育 alleged that Westpac鈥檚 automated assessment system used a benchmark (the Household Expenditure Measure or HEM) for consumer expenses and did not have regard to the actual expenses provided by the consumer and was therefore in breach of its obligations. Further, in assessing home loans with an interest-only period, ob体育 alleged that Westpac was required to have regard to the higher repayments at the end of the interest-only period and did not do so.
In his judgment today, Perram J found that a lender 鈥渕ay do what it wants in the assessment process鈥� and that other provisions of the Act impose penalties if lenders make unsuitable loans as a result of that process.
Perram J also found that Westpac did take account of consumers鈥� declared living expenses because another rule in Westpac鈥檚 system compared declared living expenses to income (but leaving out other expenses including the repayments under proposed loan) was a measure of suitability.
鈥榦b体育 took on the case against Westpac because of the need for judicial clarification of a cornerstone legal obligation on lenders, this is why ob体育 refers to this case as a 鈥榯est case鈥�.聽As a regulator, it is our role to test the law and its ambit. The obligation to assess loan applications builds on the requirement for banks to make inquiries about a borrower鈥檚 financial circumstances and capacity to service a loan and to verify the information that borrowers give banks.聽
ob体育 is reviewing the judgment carefully,鈥� said ob体育 Commissioner Sean Hughes.
Background
ob体育 is currently undertaking a process to update its responsible lending guidance. In part, this is to reflect and incorporate court decisions since ob体育鈥檚 guidance was last updated, as well as changes in market practices, conditions and the availability of data accessibility and analytics tools. As is ob体育鈥檚 usual practice, we will carefully consider the Court鈥檚 determination and how this may impact our guidance. Further information: 19-163MR.
Read the full judgment .
Editor's note:
ob体育 will appeal the above decision (19-246MR). The appeal will be heard by the Full Court on 25 and 26 February 2020.