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BFCSA: The HEM HPI Scam ASIC tallies Westpac’s responsible lending law breaches

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ASIC tallies Westpac’s responsible lending law breaches

The Australian 12:00am May 7, 2019

Anthony Klan


Westpac broke responsible lending laws more than 260,000 times in just over three years, the corporate watchdog had told the Federal Court in Sydney this morning.

Lawyers for the Australian Securities & Investments Commission said between December 2011 and March 2015, Westpac engaged in a “systematic approach” of ignoring the living expenses loan applicants had stated on application forms. Instead it relied on broad living expense “benchmarks”, which, if they were true, would in some cases have meant the loan applicant was already living on, or close to, the poverty line, ASIC told the court.

ASIC said Westpac failed to properly verify the actual financial positions of borrowers a total of 261,987 times.

In 154,351 of those cases, the bank also failed to use correct figures when assessing if borrowers taking out interest-only loans could still afford to meet repayments when honeymoon periods ended and payments increased.

ASIC and Westpac had earlier agreed that Westpac would pay a $35 million fine for breaching lending rules. However, in November the Federal Court refused to approve the deal, because the parties had failed to say how responsible lending laws were broken or how many times those laws were broken.

That refusal meant ASIC, which has come under strong criticism for failing to adequately enforce corporate laws and for failing to prosecute wrongdoers, was required to litigate the case and agree to a new settlement, or to drop the case.

ASIC has chosen to litigate the case and hearings began in the Federal Court in Sydney this morning.

ASIC told the court that despite borrowers typically being required to provide highly detailed information regarding their financial position when applying for a loan — such as their income, expenses, assets and liabilities — Westpac would systematically ignore that information.

Westpac would instead use a benchmark called a household expenditure measure (HEM), which is a broad measure for average expenses for households.

ASIC argues that by using that measure instead of a borrowers’ actual declared expenses, the bank failed to comply with responsible lending applications.

The regulator said it was inappropriate to use that one measure because individual circumstances of a potential borrower could vary widely from HEM estimates.

Further, HEM estimates were not even based on a person’s postcode, but whether or not they lived in a city, and if so, which city.

“The HEM estimates can come back to an extremely low level (of expenses),” a lawyer for ASIC told the court.

“The HEM is extraordinarily conservative, frugal.

“The level of a HEM for a family with two dependants is very similar to the poverty level.”

Regarding interest-only loans, ASIC told the court Westpac had failed to consider whether a borrower would be able to service a loan when the interest-only period ran out.

Under such loans, a borrower pays only the interest component of the loan over the few years of a loan, say between two years and five years.

After that time, however, they must make repayments which include both interest and principal components, which are generally significantly larger.

The case came as Westpac yesterday said its first-half cash profit fell 22 per cent to $3.3 billion, because of ongoing customer “remediation” costs and $136m in costs from restructuring its personal financial advice arm.

The hearing continues.


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