Westpac will pay a record $35 million fine for failing to properly assess whether thousands of people could afford to repay their home loans.
The bank admitted breaching responsible lending laws when providing home loans and agreed to the civil penalty to settle court action by the corporate regulator.
The case centred on Westpac’s home loan assessment process between December 2011 and March 2015, during which time about 260,000 home loans were approved by the bank’s automated decision system.
Westpac admitted about 10,500 home loans should not have been automatically approved and should have been referred to a credit officer to be manually assessed before any approval.
Westpac said the Australian Securities and Investments Commission did not allege any customers suffered specific loss or damage, and the bank had not admitted any loans were unsuitable for the borrowers.
The settlement was announced on Tuesday, a day after a three-week trial was due to begin in the Federal Court in Sydney.
If approved by the Federal Court, the $35 million fine will be the largest civil penalty awarded under the National Credit Act and nearly double the previous record.
ASIC said for about 50,000 home loans, Westpac received but did not use consumers’ actual expense information that was higher than the benchmark household expenditure measure.
HEM is widely used by banks when borrowers’ estimates of living expenses appear low.
The prudential regulator has told the banking royal commission HEM is based on a relatively low estimate of living expenses.
ASIC said for another 50,000 loans, Westpac failed to use the higher repayments at the end of an interest-only period when assessing an owner occupier’s capacity to repay the loan.
ASIC chair James Shipton said all lenders must obtain information from individual borrowers about their financial situation to ensure they can properly assess the customer’s ability to repay the loan.
He said lenders must then verify the information to ensure that it is true and assess whether the loan is unsuitable for the borrower.
“Taken together, these responsible lending obligations are a cornerstone protection for both borrowers and lenders,” Mr Shipton said.
Westpac upgraded its credit assessment systems in 2015.
Its consumer bank chief executive George Frazis said the bank took its responsible lending obligations very seriously, noting the legal action did not relate to its current lending practices.
Of the 10,500 loans that should not have been automatically approved, about 5400 are still active.
“From a credit quality perspective, loans approved under these circumstances have continued to perform similar to, or better than, the rest of the group’s home loan portfolio,” Mr Frazis said.
He said Westpac would proactively monitor the active loans and provide tailored hardship assistance if necessary.