Affordability as shorthand for the premise of responsible lending “impermissibly” glosses over a law codified ten years ago in National Consumer Credit Protection Act.
In a brutal judgment, the Federal Court has undermined any restraint around consumer credit, handing Westpac a heck of legal victory over ASIC yesterday.
Westpac was not obliged to take into account all declared living expenses when assessing applications for home loans, and nor did it fail to do so, Justice Nye Perram ruled in a judgment that is both colourful and unrelenting in his contempt for so much of ASIC’s case.
Parliament’s law on this topic “cannot be bent so that it is construed to say something which it does not say,” was among the slapdowns included in a ruling on a civil case heard in May.
Last November, Perram rejected a proposed settlement between Westpac and ASIC in which the bank had offered A$35 million. ASIC had alleged around 260,000 breaches of the responsible lending laws and the bank at the time conceded 5000 breaches.
Perram summarised ASIC’s overall case this way: “Across the whole of its home loan book for the period December 2011 to March 2015, Westpac failed to take account of the borrower’s declared living expenses and thus the bank failed in each case to take into account each borrower’s financial situation.”
Perram harsh analysis was; “This case fails on the facts.
“Westpac took [living expenses] into account in applying the ‘70 per cent ratio rule’ as part of its process of assessment under the ‘automated decision systems’” used by the bank.
The judge wrote that “I accept that the Act requires a credit provider to ask the consumer about their financial situation and, in turn, to ask itself—and to answer—the questions” set out in section 131(2)(a).
But, he added: “I do not accept that this has the further consequence that the credit provider must use the consumer’s declared living expenses in doing so.”
While much of the trial turned, at least notionally, "on the household expenditure measure (or HEM benchmark) … by the trial’s conclusion it was of marginal relevance,” Perram found.
“This is because, as finally articulated, ASIC’s case did not turn on the fact that Westpac had used the HEM benchmark, but instead on the alleged fact that it did not use any of the consumer’s declared living expenses.”
The judge found that “seeking to determine circumstances of objective hardship by reference to actual household expenditure may be quite misconceived.
“With knowledge of the consumer’s declared living expenses, one may well be able to discern that a consumer will have to trim their sails if the loan proceeds.
“But there is arguably a conceptual gulf between a trimming of sails and poverty.”