Westpac was caught up in a responsible lending scandal in 2018, where it admitted to breaching responsible lending laws by approving over 10,000 home loans that should not have been automatically approved.
The bank used an automated loan assessment system that relied on the Household Expenditure Measure (HEM)—a benchmark for living expenses—rather than evaluating customers’ actual declared expenses. This led to loans being granted to borrowers who may not have been able to afford them.
The Australian Securities and Investments Commission (ASIC) took legal action against Westpac, arguing that the bank failed to properly assess whether borrowers could repay their loans without financial hardship. Westpac agreed to pay a $35 million civil penalty to settle the case, which was one of the largest penalties awarded under the National Credit Act at the time.
However, a Federal Court judge refused to approve the penalty, questioning whether ASIC and Westpac had properly assessed the extent of the issue and its impact on borrowers.
This scandal was part of broader scrutiny of Australia’s banking sector, which faced allegations of misconduct and irresponsible lending practices during the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
In a case of deja vu, ASIC has outlined a range of allegations against Westpac’s RAMS home loans subsidiary. ASIC has identified at least 84 incidents of “systemic misconduct” by a number of RAMS franchises in Sydney and Melbourne.
Among other things, ASIC alleges that the franchises used fake loan documents to arrange financing that would have been rejected otherwise.
ASIC deputy chair Sarah Court said the allegations levelled against RAMS showed “systemic organisational governance failure” and the company “did not adequately supervise its franchise network”.
“RAMS allowed years of unlawful conduct to occur across its franchises, creating the opportunity for loans to be provided to customers who otherwise may not have qualified for those loans, and thereby increasing commissions earned by RAMS franchisees”, she said.
Westpac could potentially face a maximum fine of more than $100 million for the multiple breaches of the Credit Act, although the penalty is expected to be about $30 million.
Westpac closed RAMS to new business in 2024 after opting against selling it when the extent of the fraud and misconduct became apparent.
