ASIC says it is appealing the Federal Court’s Westpac loans case decision in the name of the nation’s long-term economic confidence, and to prevent banks’ lending standards retreating after years of improvement.
The corporate regulator told a parliamentary committee on Friday its appeal of the decision by Justice Nye Perram was a lesser disruption to borrowers, lenders and the economy than the potential impacts of the ruling itself, despite committee chair James Paterson suggesting otherwise.
Rather, ASIC chairman James Shipton told the joint committee on corporations and financial services the appeal was “forward-looking consumer protection” and a salve for the lingering uncertainty around what constitutes responsible lending.
“There is the risk indeed that lenders will (now) say that whatever is in ASIC’s guidance … and whatever is said in the (credit) act … they’ll act anyway,” Mr Shipton said on Friday.
“We’re concerned that standards in responsible lending may very well drop.”
The hearing follows the Federal Court’s dismissal of ASIC’s landmark case against Westpac in August, which alleged the bank approved mortgages without properly checking applicants’ credit.
Justice Perram dismissed the test case, saying living expenses declared by customers on applications did not on their own show capacity to meet repayments under a loan.
“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,” Justice Perram said.
Mr Shipton said ASIC had come to the conclusion, supported by advice from its senior council, there was a need to provide greater certainty, clarity and confidence to lenders to lend responsibly.
“The interests of certainty … and therefore the broader economy … and therefore consumer protection would be best served (by this appeal),” Mr Shipton said.
“There would be a greater harm in not appealing, as a result of the issues that we have and our senior counsel has.”
Committee chair Mr Paterson, however, said the feedback he had gathered from the financial industry indicated the Federal Court’s decision had been well received.
Senator Paterson said he was concerned with the “policy implications” of ASIC’s appeal, and added that anecdotal evidence of financial harm was “not very strong evidence” to support the regulator’s action.
“Is it (because of) the view of a consumer activist group?” Mr Paterson said.
When asked to provide specific evidence of harm done to borrowers under Westpac’s previous loan regime, ASIC said it had been provided data and case studies by community service organisations, with board members also seeing first hand the impacts of irresponsible lending during debt call centre visits.
“The challenge for this particular area … financial hardship does not necessarily manifest itself immediately or in the short or medium term,” Mr Shipton said.
“It could take place at a later place in time.”
Mr Shipton said it was not ASIC’s intention to make it harder for lenders to lend, prevent borrowers from accessing money, or put the brakes on the economy.
“Rather it is (about) moving forward with clarity,” Mr Shipton said.
“We believe a fair and strong and efficient financial system is responsible lending… Loans going to people who can afford to repay them.”
In his opening remarks as committee chair, Senator Paterson told Mr Shipton consumers felt ASIC had “failed to protect them from bad practices”.
“We have a collective responsibility to restore trust in our institutions,” he said.