As reported by the ABC, ASIC says it has been investigating up to 11 banks over their home lending practices, amid concerns loans are being given to people that cannot afford to repay them.
Appearing before Senate Estimates, the Australian Security and Investments Commission (ASIC) was questioned about its Federal Court action against Westpac, announced yesterday.
ASIC’s senior executive responsible for banking, Michael Saadat, said the inquiries have been underway for a couple of years.
“It started really when we conducted our review of interest only loans in 2015,” he said.
“We looked at the conduct of 11 lenders.
“We have announced action against Westpac but we have been in discussions with other lenders and we hope to make an announcement about the work that we’ve been doing with other lenders in the next few weeks.”
Mr Saadat added that Westpac had changed its lending practices after the regulator made its concerns known in 2015.
“Despite the fact that they stopped the practice … we’ve decided to bring this action because of the importance of the issues that it raises,” he said.
Westpac not alone
It’s a fair bet all four major banks are facing ASIC scrutiny over poor home loan approval practices.
In a statement yesterday, Westpac said the loans identified by ASIC are all meeting or ahead on repayments.
However, ASIC said its action is intended to head-off possible future risks for consumers and the financial system.
“One of the aims of the responsible lending legislation is to enable ASIC to take action before the problems manifest themselves,” explained the regulator’s deputy chairman Peter Kell.
ASIC’s chairman Greg Medcraft said a key motivation for the regulator was to get other banks to change their ways.
“The issues is deterrence, and when you lodge a case it’s not just for that party, it’s to send a message to the broader sector,” he said.
ASIC said the maximum civil penalty that a court could award for breaches of the responsible lending laws is $1.7 million per contravention.
Westpac currently stands accused of seven contraventions of the law.
Here is Westpac’s media release about the matter:
Westpac will defend Federal Court proceedings commenced by ASIC in relation to a number of home loans entered into between December 2011 and March 2015, including specific allegations made by ASIC regarding seven loans. The court action does not concern Westpac’s current lending policies or practices.
Of the seven specific loan applications ASIC references in its proceedings, all loans are currently meeting or ahead in repayments.
Westpac Group, Chief Executive, Consumer Bank, George Frazis said Westpac takes its responsible lending obligations seriously and has confidence in its lending standards and processes. Our objective is to help more Australian families into their homes in a responsible way.
“It is not in the bank’s or customers’ interests to put people into loans that they cannot afford to repay. It goes hand in hand that we have robust credit approval processes while helping customers purchase their home.
“Our credit policies are informed by our deep experience and understanding of the mortgage market.
“They include a consideration of customers’ specific circumstances, including income and expenditure, previous repayments history and the overall customer relationship. We build into our processes a range of conservative inputs, including the addition of buffers to take into account possible future interest rate increases.”
Mr Frazis said Westpac uses sophisticated systems as part of its rigorous credit approval process. This includes utilising benchmarks such as the Household Expenditure Measure (HEM), published by the Melbourne Institute for Social and Economic Research, which provides broad analysis of customer expenditure based on demographic criteria.
“In our experience this survey is a useful input into our loan assessment process, in combination with our understanding of customers’ circumstances.”
Westpac disputes ASIC’s claims that Westpac relied solely on the HEM benchmark and did not have regard to a customer’s declared expenses in its unsuitability assessment.
“The Australian residential market is dynamic and we are constantly reviewing and refining our credit policies.”
“Importantly, interest-only mortgages were assessed in the same way as a standard principal and interest loan, and did not increase how much a customer could borrow.
“We are committed to meeting our responsible lending obligations and servicing the needs of customers, including prompt credit approval, which enables our customers to responsibly purchase their home with confidence,” Mr Frazis said.