Legal experts and consumer advocates were yesterday mulling over the intricate detail of Justice Perram’s 10-page judgement that slayed ASIC’s effort to wrench $35 million from Westpac for alleged breaches of consumer credit laws.
It was another blow to the reputation of the regulator, which desperately needed to demonstrate it can hold a major bank to account before its most senior officer appears before the Hayne Royal Commission’s next round of hearings.
Justice Perram was very clear about what the settlement deal lacked: neither ASIC nor Westpac could explain how the bank contravened the consumer credit laws by relying on an algorithm to assess the eligibility of at least 5041 loan applicants.
“I accept the need for the court to encourage settlements in this area but the desirability of doing so does not permit the court to become a rubber stamp, especially where there is patent disagreement as to what conduct constitutes a contravention,” Justice Perram explained in his judgment.
Where ASIC’s responsible lending case against Westpac goes from here is a bit of guessing game and neither the bank nor the regulator were dropping any clues last night as to their next moves.
ASIC could try to renegotiate a settlement, initiate trial proceedings or drop the case altogether.
One of the country’s pre-eminent consumer law experts, Professor Ian Ramsay of the University of Melbourne, said the parties would need to articulate what were the fundamental contraventions of the consumer credit laws before the Federal Court could approve an amended settlement agreement.
“Obviously, the parties have to go back and articulate what were the fundamental contraventions,” he said.
“It might lead to a different agreed penalty because there is disagreement over what contraventions occurred.
Ramsay said the outcome of the matters raised by ASIC in relation to the HEM benchmark could have implications for many other lenders who also used it to assess loan applications.
“This case, to a large degree, revolved around the use of the HEM benchmark for measuring the living expenses of applicants,” he said.
“What remains to be determined is the extent to which that benchmark was an appropriate measure.
“That may have implications for other lenders.”
Consumer advocates said they were disappointed by the judgment.
“I am disappointed that the court hasn’t made a finding that banks relying on benchmarks are contravening the responsible lending laws,” said Gerard Brody from the Melbourne-based Consumer Action Law Centre.
“Our view has long been that the HEM benchmark is not a sufficient verification tool.”
Brody said he hoped the Westpac matters either go to trial or are addressed through a reworked settlement agreement.
He baulked at criticising ASIC’s decision to pursue a settlement rather than litigate the Westpac matters.
“We’re always encouraging our regulator to take enforcement action,” he said.
“But, we recognise that they have limited resources – in the last five years ASIC’s budget has been cut substantially.”