The Australian Securities and Investments Commission (ASIC) has lost its appeal against the decision of Justice Nye Perram in the Westpac responsible lending case. The case, now commonly known as the ‘wagyu and shiraz’ case, was first launched on 1 March 2017.
ASIC alleged Westpac had breached responsible lending laws on more than 261,000 home loan applications between 2011 and 2015 by using a benchmark household expenditure measure to assess and estimate a borrower’s expenses, rather than reviewing their expenses individually to determine if they could service the loan. The appeal was dismissed by the full Federal Court, by a majority of two to one, and ASIC was ordered to pay Westpac’s costs.
ASIC’s rationale for its appeal was that it “felt it was important for judicial clarification of a cornerstone legal obligation on lenders”. It will carefully consider the Court’s decision and any revisions that are necessary to guidance.
Banks have made significant changes to lending origination standards in recent years. The capture of declared living expenses has become more granular and banks have worked towards addressing gaps identified in their targeted reviews by the Australian Prudential Regulation Authority.
In Ord Minnett’s view, it is still possible that ASIC will seek leave to appeal the decision to the High Court, although the decision removes some tail risk for Westpac and the broader industry from potential litigation and prevents a weakening of banks’ claims to collateral.
We maintain our Hold rating on Westpac with a target price of $18.90. Our key preferences remain National Australia Bank (NAB, Accumulate) among the major banks, and Bendigo and Adelaide Bank (BEN, Accumulate) in the regionals.