The Financial Rights Legal Centre (Financial Rights) and Consumer Action Law Centre (Consumer Action) have called for the Government to amend responsible lending laws to ensure that lenders make reasonable inquiries and verify borrowers’ actual financial situation.
This follows a decision by the Federal Court to dismiss Australian Securities and Investments Commission’s (ASIC’s) responsible lending case against Westpac. ASIC had alleged that Westpac breached responsible lending laws on over 250,000 home loan approvals made using an automated process that relied on the Household Expenditure Measure (HEM) benchmark, rather than using each applicant’s individually declared and verified living costs.
“The court finding is incredibly disappointing,” said Financial Rights CEO Karen Cox. “The decision suggests that banks do not have to have regard to people’s actual expenses when they lend – which in turn will allow lenders to continue to extend unsustainable loans which set people up to fail.”
“To suggest that borrowers ditch wagyu steaks and shiraz for cheaper food really is out of touch with the realities faced by most Australians. The rules and procedures applied by Westpac could equally have approved borrowers who have significant medical expenses, or additional education and recreational expenses for a child with a disability. People who work long hours may eat out and/or have high child care costs as a necessary corollary of being able to keep the job they need to be able to afford their mortgage in the first place.
“If lenders were to be responsible, they would want applicants to demonstrate that they have reduced their expenditure — at least for a period — before applying a loan. We can’t assume that people will be able to tighten their belts; that’s simply not the reality of most people.”
Consumer Action Chief Executive Gerard Brody said: “Commissioner Hayne chose not to recommend any changes to responsible lending laws in his Banking Royal Commission final report in part on the basis that he needed to let the Westpac case play out.
“However in doing so Commissioner Hayne said that “If the court processes were to reveal some deficiency in the law’s requirements to make reasonable inquiries about, and verify, the consumer’s financial situation, amending legislation to fill in that gap should be enacted as soon as reasonably practicable.”
“It is clear from today’s decision that Government will need to legislate to fill the gap.”
 Australian Securities and Investments Commission v Westpac Banking Corporation (Liability Trial)  FCA 1244, https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2019/2019fca1244
 Page 57 Final Report Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry VOLUME 1 https://www.royalcommission.gov.au/sites/default/files/2019-02/fsrc-volume-1-final-report.pdf
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