Westpac's record $35m home loan penalty
WESTPAC AGREES TO RECORD $35 MILLION FINE:
WHAT HAS HAPPENED?
* Westpac agreed to pay $35 million for breaching its responsible lending obligations when providing home loans
* Settlement with corporate regulator ASIC is subject to Federal Court approval
* $35m is largest civil penalty under the National Consumer Credit Protection Act, and nearly double the previous record
* Three-week trial was due to start in Sydney on Monday (September 3)
* Westpac will also pay ASIC's litigation and investigation costs
WHAT WAS THE CASE ABOUT?
* Westpac's automated home loan assessment process between December 2011 and March 2015
* About 260,000 loans approved by automated decisioning system during that time
* For about 50,000 home loans, Westpac did not use customers' declared living expenses when assessing their capacity to repay the loan and instead used the benchmark household expenditure measure (HEM)
* For about 50,000 home loans to owner occupiers with an interest-only period, Westpac failed to use the higher repayments at the end of the interest-only period when assessing capacity to repay the loan
* Of those 100,000 loans, Westpac should not have automatically approved 10,500 loans - they should have been referred to a credit officer for manual assessment
WHAT HAS HAPPENED TO THE LOANS?
* Westpac said ASIC has not alleged any customers suffered specific loss or damage and the bank has not admitted any of the loans were unsuitable for customers at the time they were taken out
* Westpac changed its credit assessment systems in 2015; says it thoroughly assesses home loan applications
* Of the 10,500 loans Westpac admits should not have been automatically approved, about 5400 loans are still active - representing 0.4 per cent of its mortgage portfolio
* Westpac says the relevant loans are performing as expected and in line with the broader loan book
WHAT ARE THE WIDER IMPLICATIONS?
* HEM is an independent measure for living expenses incurred by Australian households
* Banks typically use a benchmark when borrowers' declared expenses appear low
* Australian Prudential Regulation Authority says HEM is used in the majority of lending decisions for most banks it reviewed, but is based on a relatively low estimate of borrower living expenses
* Lenders are required to make reasonable inquiries about a borrower's financial situation, verify the information they obtain and assess whether a loan contract will be unsuitable for the borrowers.
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