Court dismisses ASIC appeal over Westpac’s responsible lending criteria
Westpac has won a major victory over the Australian Securities and Investments Commission in the so-called “wagyu and shiraz” test case of responsible lending laws.
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Westpac has won a major victory over the corporate cop in the so-called “wagyu and shiraz” test case of responsible lending laws.
The Federal Court has dismissed an appeal by the Australian Securities and Investments Commission against an earlier win by Westpac in the case, which has been watched closely by the banking industry and consumer advocates.
It centred on whether banks could rely on general expense benchmarks when making loans or whether they must take into account borrowers’ declared living expenses.
The original ruling against ASIC also questioned whether declared living expenses were automatically relevant to responsible lending given borrowers could cut back on their spending — substituting “wagyu and shiraz” for more “modest fare” — in order to afford loans.
On Friday, the Federal Court dismissed ASIC’s appeal against that ruling and ordered the regulator to pay Westpac’s costs.
But the case split the three judges. Justice John Middleton said he would allow the appeal “in part” but the other two judges, Jacqueline Gleeson and Michael Lee, concluded it should be dismissed.
“The (National Consumer Credit Protection) Act cannot be construed to require Westpac to consider the total figure for declared living expenses in each case for the purpose of assessing the consumer’s likely ability to meet their financial obligations,” Justice Gleeson ruled.
“The Act did not oblige Westpac to obtain that information and, when obtained, the Act did not prescribe the use to which Westpac must put such information.”
In his dissenting judgment, Justice Middleton rejected the view that declared expenses were not necessarily relevant to home loan applications, or that borrowers could always reduce their living costs.
“Whether it be wagyu beef washed down with the finest shiraz (to use the example of the primary judge), or less expensive expenditure on food and drink, this may not be willingly forgone or even able to be reduced by a particular consumer,” he concluded.
“The unsuitability of a loan cannot be determined if the focus is not on the particular consumer, applying criteria divorced from that consumer’s circumstances.”
ASIC commissioner Sean Hughes said the regulator had pursued the case to seek judicial clarification of a cornerstone legal obligation on lenders. The watchdog can seek leave to appeal to the High Court.
“ASIC notes today’s majority judgment and will review each of the separate decisions carefully — including what additional measures or clarification may be required to support compliance with the Credit Act,” Mr Hughes said.
The regulator had claimed Westpac breached responsible lending laws almost 262,000 times when it provided home loans between December 2011 and March 2015.
In rejecting the original case, Federal Court Justice Nye Perram found self-declared expenses were not a bulletproof formula for assessing if a loan could be repaid.
“I may eat Wagyu beef every day washed down with the finest shiraz but, if I really want my new home, I can make do on much more modest fare,” he said.
The case ended up in a court battle after the Federal Court refused to approve a $35 million settlement between Westpac and ASIC.