Anachronistic ASIC out of touch, says Westpac

The corporate regulator’s views on mortgages are stuck in the 19th century, Westpac says.

Westpac has argued that ASIC’s views on mortgage assessments are out of touch with modern realities. Picture: AAP

Westpac has accused the corporate regulator of taking a 19th century view of assessing mortgage applications, because it discounted the entirety of the bank’s credit approval process.

During final arguments in a seven-day Federal Court hearing, Westpac said the Australian Securities and Investments Commission’s case against it should be dismissed, with costs. ASIC alleged the bank breached the law by failing to properly verify the actual financial position of borrowers 261,987 times.

In a closing submission made by Jeremy Kirk SC, Westpac argued it had conducted a suitability assessment for potential borrowers as required by section 128(c) of the National Consumer Credit Protection Act.

Mr Kirk took a swipe at ASIC and added that Westpac’s loan approval process was multi-pronged and went far beyond the use of automated systems, using factors including credit policies and other customer data.

“It just focuses (on an income minus expenses approach) as though we were 19th century accountants,” Mr Kirk said of ASIC’s view, making an off-handed remark about high-profile author of the time Charles Dickens.

“It is not how it’s done in the 21st century.”

Mr Kirk argued there was a “lack of guidance” in the law to specify exactly how banks should deem a loan unsuitable and that Westpac had employed a range of policies and systems, including the Household Expenditure Measure (HEM) to make an assessment.

“The blurriness of this argument … it leaves no way of delineating what’s in or out. That’s at the heart of the problem in ASIC’s case,” he added.

Westpac’s automated loan systems comprised more than 200 rules, including one covering serviceability to calculate whether borrowers would have a net monthly surplus or shortfall by taking on the mortgage.

ASIC’s case centres on loans written by Westpac from late 2011 to 2015.

The regulator on Monday argued Westpac breached the law by relying on the HEM benchmark expenditure measure to assess potential mortgage customers rather than using it as a “cross-checking tool”.

ASIC’s lawyers said Westpac in many cases “just discarded” information on customer expenses and reverted to the HEM.

The other big banks are closely watching the court case as they move away from using benchmarks like HEM, after the Hayne royal commission prompted a stricter interpretation of the law. Westpac has introduced 13 new expense questions on its loan applications as a result.

Mr Kirk told the court loan arrears rates for mortgages Westpac wrote during the period in question were low, and that ASIC had withdrawn its argument that any of the loans were “unsuitable”.

He said it was wrong for ASIC to say Westpac didn’t factor a borrower’s expenses into its loan assessment.

Mr Kirk also took the argument further, saying it was not the bank’s job to assess estimated expenses well into the future. He used an example of a whether a first homebuyer couple should be asked by their bank if they planning children.

“Is Westpac obliged to ask?

“Is ASIC really suggesting that is the sort of requirement?”

The case, being heard before Nye Perram, comes after an earlier $35 million settlement of the matter was knocked back by the court. Justice Perram will take on board the closing statements as he formulates a judgment which will be handed down at a later date.