In the recent case of ASIC v Westpac Banking Corporation  FCA 1733 (13 November 2018), the Federal Court of Australia (“the Court”) refused to approve a $35 million penalty for Westpac Banking Corporation (“Westpac”), despite the bank admitting it broke responsible lending laws.
Justice Perram refused an agreed settlement between the parties on a technicality after finding the Australian Securities and Investments Commission (“ASIC”) and Westpac could not agree on exactly how, or how many times, Westpac broke the law.
Westpac’s use of the Household Expenditure Measure (“HEM”) came under scrutiny at theafter it emerged they were automating loan approvals using benchmarks rather than taking the time to properly assess a customer's expenses and income. Westpac admitted that its automated loan approval system used the HEM to calculate potential borrowers' living costs.
It is claimed that in some 5,041 instances the bank used the HEM instead of actually evaluating the customers' declared living expenses. Westpac admitted that in certain circumstances , this practice breached the National Consumer Credit Protection Act 2009 (Cth) (the “Act”).
According to an article in the(“SMH”):
In handing down his judgment, Justice Perram said “I do not propose to make the declaration sought” with his Honour also noting that in some 5,041 instances, Westpac had used the HEM benchmark in preference of declared living expenses, because they were higher than the benchmark.
His Honour said at [para 16]:
According to the, his Honour also voiced concerns over the terms of ASIC’s settlement agreement with Westpac during the hearings, taking the unusual step of using an amicus curiae to argue the case on behalf of Westpac if it had not agreed to the settlement.
Former Solicitor-General Justin Gleeson SC, was hired by the court to perform the task of amicus curiae, and argued that ASIC had not told the court how Westpac had breached responsible lending laws, telling the court:
reports Perram J said that "admirable ingenuity had been applied" by ASIC and Westpac's lawyers to "gloss over the very real differences which exist between them" on the interpretation of this part of the Act, noting at [para 11]:
Speaking to, corporate law expert Professor Ian Ramsay said it was rare for a court to reject a settlement reached by the consent of both parties and he considered it greatly reduces ASIC's bargaining power, and might "embolden Westpac to negotiate a lower penalty". Commenting further Professor Ramsay said:
also reveals that former High Court Judge Kenneth Hayne appears to have a different view in hearings conducted during the banking Royal Commission.
Commissioner Hayne believes the HEM is completely inadequate, even as a floor when assessing expenses, let alone as a substitute for what customers have declared. Instead, he wants banks to actually check people's bank statements to find out how much they are really spending.
Theinto Misconduct in the Banking, Superannuation and Financial Services Industry, reveals at 2.2.3 (pages 24, 25)
An ASIC spokesperson said the regulator "is reviewing the judgment and will make no further comment at this stage", while a spokesman for the bank said “Westpac respects Justice Perram’s decision. We are carefully considering the judgment”.
Further proceedings have been set down for 27 November 2018.
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ASIC v Westpac Banking Corporation  FCA 1733 (13 November 2018)
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