Australian regulator loses court battle against Westpac over lending standards
* Court dismisses responsible lending case against Westpac
* Courts at odds with Royal Commission - academic
* Ruling comes as regulators push for tougher lending rules
(Adds quotes from academic, background)
By Paulina Duran and Byron Kaye
SYDNEY, Aug 13 (Reuters) - An Australian court on Tuesday
dismissed allegations that Westpac Banking Corp had
approved mortgages without adequate credit checks, dealing a
blow to the regulator's efforts to toughen lending standards.
The Federal Court ruled against the corporate watchdog, the
Australian Securities and Investments Commission (ASIC),
deciding that Westpac had obeyed the law when approving 262,000
home loans using an automated system to estimate expenses.
The case was being watched as a test of the government's
push for stricter oversight of the financial sector, after a
public inquiry last year found widespread wrongdoing and
lacklustre enforcement by feeble regulators.
It suggests that legislation may be needed if regulators,
newly empowered with greater resources and an explicit mandate
to take firm legal action against misconduct, are thwarted by
"I'm not sure the courts are, in this instance, in tune with
what public expectations might be," said Thomas Clarke, a
professor at the University of Technology, Sydney business
Judge Nye Perram told ASIC to pay the No. 2 lender's court
costs after deciding it had done nothing wrong by using the
automated system rather than manually checking each applicant's
The law did not explicitly require banks to check expenses,
he said, and he was "unable to discern why, as a matter of
principle, the consumer's declared living expenses must be
"I may eat Wagyu beef every day washed down with the finest
shiraz but, if I really want my new home, I can make do on much
more modest fare," he wrote in the judgment.
Australia's four biggest banks use index measures to
calculate living expenses and Westpac says more prescriptive
lending rules would harm Australia's already sluggish economy.
The bank said ASIC's lawsuit was an "important test case"
and welcomed the "clarity that today's decision provides for the
interpretation of responsible lending obligations".
The ruling comes after a government-mandated inquiry known
as a Royal Commission last year heard banks had underestimated
borrowers' spending and in some cases approved loans to people
who could not repay them.
The former judge presiding over that inquiry, Kenneth Hayne,
said then that laws should be changed if courts showed a
"deficiency in the law's requirements to make reasonable
inquiries about, and verify, the consumer's financial
Regulators have since said they want banks to do individual
credit checks on borrowers to assess loan affordability, instead
of relying on indices that estimate a person's minimum living
expenses based on average Australian incomes.
"It does show you how slowly legal and regulatory change
takes place. The Royal Commission can fire a number of huge
incendiaries into existing practices and legal practices, but
the courts carry on as if it's business as usual," Professor
The judgment comes after the parties had already agreed to a
A$35 million ($23.6 million) civil penalty over the allegations,
which was rejected by the court.
An ASIC spokesman was not available for comment.
($1 = 1.4804 Australian dollars)
(Reporting by Paulina Duran and Byron Kaye; Editing by Stephen
First Published: 2019-08-13 03:26:17
Updated 2019-08-13 07:36:27
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