Westpac defends lending habits

Westpac has told the Federal Court its ‘wronged borrowers’ could make lifestyle changes in order to meet their loan repayments.

A branch of Westpac bank in Collins Street, Melbourne. Picture: AAP

Westpac has criticised the corporate regulator’s enforcement of responsible lending laws as a “new idea” and says its wronged borrowers could make lifestyle changes to meet repayments in its defence of allegedly breaking lending laws more than 260,000 times.

Fronting the second day of hearings in the Federal Court in Sydney, lawyers for Westpac said the bank had “done its utmost to meet its legal requirements” and that it was not in the bank’s interests to make loans to borrowers who could not afford them.

The Australian Securities & Investments Commission has claimed Westpac engaged in a “systemic approach” of ignoring the living expenses that borrowers declared when applying for loans 261,987 times between December 2011 and March 2015.

ASIC and Westpac had agreed the bank would pay a $35 million penalty, however last November the Federal Court refused to allow the deal to proceed on the grounds the parties had not stated how many times responsible lending laws were broken, or the ways in which they were broken.

The Federal Court is required to give approval to such deals.

Westpac’s lawyers said ASIC’s “mechanistic approach to legislation” was a “new idea” and the bank had adequate hardship provisions for customers who could not afford to repay their loans.

The bank argued that default rates on the loans it wrote were low and where calculations were made that understated a person’s living expenses, people “could take reasonable changes” to their lifestyles to avoid defaulting on loan repayments.

“We consider whether repayments will cause significant hardship” the bank’s lawyers said.

The court’s rejection of the $35m settlement last November meant either ASIC had to drop the case or Westpac and ASIC had to litigate the case before the court, which is occurring now.

The court heard yesterday that of the 261,987 cases of improper lending, in 154,351 cases Westpac had also failed to use correct figures when assessing borrowers taking out “interest only” loans. The bank failed to account for the increase in payments when loan repayments reverted from being the interest-only component, to being repayments of both the principal and the interest, typically between two and five years after a loan was written.

ASIC has told the Federal Court that despite borrowers typically being required to provide highly ­detailed information about their financial position when making a loan application — ­including stating their income, expenses, assets and liabilities — Westpac would systematically ­ignore that information.

The corporate regulator said Westpac had instead used broad expense averages, or “benchmarks”. Those benchmarks were not even tied to a borrower’s postcode but to the entire city in which they lived, the court has heard.

ASIC said using that household expenditure measure (HEM) approach was improper because it failed to take into ­account the borrower’s individual circumstances.

The hearings continue.