Westpac has today agreed to a $35 million penalty in order to resolve their breach of responsible lending obligations on a number of its loans submitted via an automated decision system between December 2011 and March 2015
The lender was found to have breached its obligations due to its system
- Failing to consider client's declared expenses, instead referring only to the relevant benchmark, leading to assessed expenses being below client declaration in just under 20% of loans assessed
- Failing to consider repayments for when a lender reverts to principle and interest from interest only, resulting in 10% of system approved loans being unable to pass serviceability.
What lessons are to be taken away from this?
A hot topic in the broking world right now is expenses verification, and what you should be doing. QED's stance is, and will remain until ASIC says otherwise, that there is no 'one size fits all' approach to verifying your client's expenses. This ruling does NOTmean that a benchmark such as the Household Expenditure Measure is not appropriate for use, rather it is an important reminder that you CANNOT solely rely on benchmarks for finding out your client's expenses. rather you should be making your own enquiries with the client, and then using benchmarks as a useful tool for verification to see if the numbers provided 'make sense' - if not, then you should look at other methods to verify expenses such as reviewing bank statements.
More importantly, QED has noticed a trend that many brokers don't assess loans based on the expiry of interest-only periods, or other 'teaser rates' for that matter.Unfortunately, due to the tighening of credit policies, we are no longer working within an environment where clients can reliable utilise a rolling interest-only strategy, so it is more important than ever that predictable changes to a loan/circumstances are assessed as part of your preliminary assessment. For example, a 30 year loan with a 5 year IO term should also be tested as a 25 year P&I loan to ensure clients can make repayments.
How will this impact me?
The unfortunate reality is that, even though these loans occured between 2011 and 2015, and lending standards have already tightened significantly, due to the sheer numbers of non-compliant loans, as well as the fines faced by the lender it seems likely that this is likely to generate further requirements, be they from lenders, aggregators or from the regulator. As a QED CompliFast subscriber, you can recieve regular updates to any compliance amendments that need to be made, as well as recommendations for how to to approach the new requirements.
No information has been released at this stage if any of the non-compliant loans were broker-originated, however we recommend contacting QED if you believe that a loan you originated to Westpac from 2011 to 2015 may have not passed serviceability requirements, or for any other reason.
We're here to help, if you need any assistance or wish to discuss this issue further, feel free to call our team on 1300 817 662
Find the original ASIC media release below: