13 Sep ASIC worried standards will drop on bank ruling
Clancy Yeates and Ben Weir – The Sydney Morning Herald – Friday 13 September
The corporate cop has defended its move to appeal a Federal Court ruling in a high-profile case against Westpac, saying it is worried lending standards will be eroded if the decision is allowed to stand.
Appearing before a parliamentary in Canberra on Friday, Australian Securities and Investments Commission (ASIC) chairman James Shipton and commissioner Sean Hughes faced a barrage of questions from MPs over the regulator’s decision this week to continue pursuing Westpac in the courts over what it says was irresponsible mortgage lending.
Federal Court justice Nye Perram last month dismissed ASIC’s claim Westpac had breached responsible lending laws, after ASIC had alleged the bank broke the law by failing to take into account the customers’ living expenses, instead of relying on a statistical benchmark.
Justice Perram ruled ASIC’s case did not stack up because borrowers could change their spending patterns after taking out a loan, such as by ditching luxury foods such as wagyu steak and fine wine.
After ASIC this week said it would appeal, Mr Hughes expanded on what lay behind the decision. He highlighted that Justice Perram’s decision included the phrase a lender can “what do it wants” in the loan assessment process.
ASIC is worried that as a result of the ruling, banks could ignore the regulator’s guidance, which is not legally binding, and this would reverse an improvement in credit standards over recent years.
Mr Hughes said by taking the appeal action ASIC was offering the market certainty.
“The reason we have taken the appeal against Westpac is to give the market certainty going forward. We think that when we get to the end of the appellant process there will be that certainty,” he said.
“Our concern is that the judgment of the Federal Court may enable some relaxation of those standards,” he said.
“If we look at the spectrum of those standards and behaviour, there could be a retreat to bare minimum standards, which we do not think is either in the interests of consumers or in the interests of the economy.”
Mr Shipton said: “We came to a decision that in the interests of providing greater certainty and, importantly, fair outcomes and consumer protections for borrowers, as well as certainty for lenders, that the best course of action was to pursue an appeal in this matter.”
Asked by the committee chair, Liberal Senator James Paterson about the impact on credit availability, Mr Shipton said ASIC received opinions from two senior Counsel barristers on the matter and ASIC believed there would be a “greater harm by not appealing”.
“I think the recommendation from the royal commission was ‘why not litigate? Not, why not appeal?’” Senator Paterson said.
Liberal MP Jason Falinski questioned whether the appeals process was “petrifying” lenders and having a flow-on impact to customers.
“The reason they are demanding more guidance from you is because of your activities, they are looking back, and saying we thought we were obeying the law eight years ago,” he said.
“They are absolutely petrified about what is going on at the moment and that is impacting people’s capacity to gain credit,” Mr Falinski said.