FCA rejects Westpac’s responsible lending settlement

In the recent matter of Australian Securities & Investments Commission v Westpac Banking Corporation [2018] FCA 1733, Perram J of the Federal Court dismissed an application by ASIC and Westpac Bank for judicial approval of a penalty settlement. ASIC tends to favour reaching settlements rather than litigation for the purpose of applying penalties due its relative efficiency. A settlement can be preferential to litigation in terms of time expended and cost, especially in investment cases with large plaintiff classes or numerous issues.

This case is particularly unique as Perram J made amicus curiae appointments — the appointment of an independent third party to assist the Court in certain ways — to argue against the application in the place of Westpac.

The penalty was concerned with the methods employed by Westpac regarding home loan suitability assessments in a period between 12 December 2011 and March 2015. The specific method in question was a rule of Westpac’s Automated Decision System which gave a ‘Final Net Monthly Surplus/Shortfall’ calculation. The issue was that the calculation was not based on financial information provided by the customer, but rather a benchmark known as the HEM Benchmark based on data gathered by the ABS.

Westpac and ASIC had agreed that use of the HEM Benchmark was a contravention of s 128 of the National Consumer Credit Protection Act 2009 (Cth) (‘the Act’). Perram J strongly disagreed with this outlining that s 128 is focused on entering into a credit contract before making an assessment. In his Honours own words “… using the HEM Benchmark does not conceivably contravene s 128”. His Honour then went on to critique the substance of the agreement, noting that other than stating Westpac breached s 128, it did not outline what conduct or facts resulted in the breach.

Even after a thorough examination of the relevant facts and submissions by counsel for both parties, Perram J was not convinced that the draft orders presented to him were sufficient to fulfil the obligations of the Court under s 166 of the Act. Section 166 requires a court making a declaration for the purposes of a civil penalty provision to specify the conduct constituting the contravention. His Honour was quite blunt in expressing that he felt the conduct specified was conduct that could breach s 128 stating “I simply do not accept that the conduct specified in the declaration is conduct which could possibly be a contravention of s 128. I will not declare conduct which is not unlawful to be unlawful. The contraventions of s 128, that is the entry into credit contracts, must be specified. The declaration tells one next to nothing.”

On this basis, the joint application was refused with a case management hearing set for November 27.  In making this refusal Perram J state “… 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”.

At James Conomos Lawyers we are experienced in Commercial Litigation. If you or your business needs assistance navigating a complex legal dispute, please call us on 1800 JCL LAW to speak with one of our friendly staff.