Westpac will no longer have to pay ASIC a $35 million penalty for breaking responsible lending laws despite the penalty being the result of a negotiated settlement between the commission and the bank.
Justice Nye Perram refused the penalty in a judgement which said that neither party had agreed on their interpretation of the National Consumer Credit Protection Act.
“Because the parties do not actually agree on what section 128 [of the act] requires, they are unable to agree on how many of the respondent’s loans were made in contravention of it,” he noted.
“This also makes it very difficult to judge the appropriateness of the proposed penalty of $35 million.”
Westpac admitted back in September to breaching its responsible lending obligations when providing home loans as it used the Houshold Expenditure Measure (HEM) benchmark to calculate borrowers’ living costs.
In admitting its contraventions, both Westpac and ASIC filed a statement of agreed facts and joint submissions to the penalty.
However, Justice Perram said the declaration by the parties proved that neither party could explain whether any significant harm had been done to any customers and that neither party agree on when the use of the HEM benchmark breached the law.
“The declaration does not provide any information about when the use of the HEM benchmark instead of the customers’ declared living expenses is permitted and when it is not,” he observed.
“As the parties plainly intended, this is precisely the question the declaration does not answer.”
It was on that basis that Justice Perram dismissed the penalty as it was unknown what is to be penalised.
“How can the court be expected to assess the reasonableness of the proposed penalty if it is left in the dark about what the actual problem is?” he asked.
While Westpac will not have to pay the $35 million penalty it does have to pay a pecuniary penalty of $3.3 million to ASIC for breaching section 12CC of the ASIC act.
Westpac was found by Justice Beach in the federal court to have traded with a dominate purpose of influencing yields of traded Prime Bank Bills and where BBSW set in a way that was favourable to its rate set exposure.
Justice Beach imposed the maximum fine on the bank and said that Westpac’s misconduct was a serious and unacceptable offence.
“Imposing the maximum penalty is the only step available to me to achieve specific and general deterrence. The message that should be sent is that if you manipulate or attempt to manipulate key benchmark rates you are likely to have the maximum penalty imposed, whatever that is, from time to time,” he said.
