ASIC's case against Westpac over responsible lending has been thrown out for the second time.Credit:Jessica Hromas
One of the appeal court judges sided with ASIC while the other two ordered the appeal be dismissed and called on the regulator to cover the bank's legal costs. ASIC could now escalate the matter to the High Court in a final effort to win the longstanding case against the country's oldest bank.
ASIC alleged Westpac breached responsible lending laws on more than 261,000 home loan applications between 2011 and 2015 by using a benchmark known as the Household Expenditure Measure (HEM) to assess and estimate a borrower's expenses rather than reviewing their expenses individually to determine if they could service the loan.
The HEM and other similar benchmarks are used by all the big banks to determine whether the expenses declared by a home borrower on their application are realistic.
It is plain that a consumer may choose to,and can be expected to,forgo particular living expenses in order to meet their financial obligations under a credit contract.
Justice Michael Lee
The banks'use of the HEM came under scrutiny at the banking royal commission after it was revealed banks were automating loan approvals using benchmarks rather than taking the time to properly assess a customer's expenses and income. However,the royal commission did not recommend any changes to responsible lending laws in its final report.
The lawsuit brought by ASIC was thrown out in August last year but the regulator appealed Justice Nye Perram's judgment that found a bank could never fully assess a borrower's financial position by looking at expenses on everyday items because the borrower had the ability to change their spending behaviour after taking on the loan.
Justice Perram's decision referenced spending on wagyu beef and shiraz as two items that could be forgone if a consumer wanted to service a loan.