The corporate regulator ASIC (Australian Securities and Investments Commission) has started civil proceedings against Westpac over the way the bank assessed the ability of borrowers to repay home loans.
The bank faces action in the Federal Court over alleged breaches of the responsible lending provisions of National Credit Act between December 2011 and March 2015.
ASIC alleges Westpac failed to properly assess whether borrowers could meet repayment obligations before entering into home loan contracts.
The National Credit Act ensures that lenders make reasonable inquiries about a borrower’s finances to find out whether they are capable of repaying a loan.
ASIC alleges Westpac used a benchmark instead of the actual expenses declared by borrowers in assessing their ability to repay the loan.
The bank is said to have approved loans where a proper assessment of a borrower’s ability to repay the loan would have shown a monthly deficit.
And for interest only home loans, Westpac is alleged to have failed take into account higher repayments at the end of the loan period.
The first hearing for the proceedings will be on March 21.
Last year Payday lender Cash Converters had to pay a $1.35 million penalty and refund $10.8 million to customers over its responsible lending processes.
ASIC then said Cash Converters had “failed to make reasonable inquiries into consumers’ income and expenses” in small loans processed online and “failed to assess the loans as unsuitable for the particular consumers and subsequently entered into them in breach of the credit legislation”.
Business Insider Emails & Alerts
Site highlights each day to your inbox.