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Westpac takes aim at ASIC over 'ambitious' home loan lawsuit

The corporate regulator's landmark case against Westpac over allegedly irresponsible home loan practices does not show customers suffered "any hardship", the bank has told the Federal Court.

In the first action of its kind, the Australian Securities and Investments Commission (ASIC) has launched civil penalty proceedings against Westpac for allegedly breaching responsible lending laws.

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It alleges the bank failed to properly assess whether customers could meet their repayments before entering into home loan contracts between December 2011 and March 2015.

The regulator is asking the Federal Court to declare that Westpac breached national consumer protection laws and impose a pecuniary penalty.

At a preliminary hearing in Sydney on Tuesday, Westpac's barrister, Jeremy Kirk, SC, said ASIC had "not alleged that any consumer ... had suffered any hardship, let alone substantial hardship".

"ASIC's case is a very theoretical one," Mr Kirk said.


He said the bank had "difficulty" understanding ASIC's case and pointed to "ambiguities" in court documents filed by the regulator.

Justice Nye Perram said it was clear "this is going to be a fairly complicated piece of litigation".

ASIC alleges Westpac relied solely upon a benchmark instead of actual expenses declared by borrowers to assess their ability to repay loans, a claim disputed by the bank.

Mr Kirk said ASIC had not identified a "particular rule" that needed to be applied in assessing a borrower's capacity to repay a loan.

ASIC's barrister, Stephanie Patterson, said the regulator did not "necessarily accept" that its claim contained the ambiguities alleged by Westpac but was willing to make amendments to narrow the issues in dispute.

The regulator's claim points to seven examples – believed to be part of a larger sample of loans – where it says Westpac failed to consider customers' declared living expenses when assessing applications.

ASIC alleges the bank relied instead on ABS Household Expenditure Measure (HEM) benchmark figures.

It says one customer who applied for a $750,000 loan told the bank their monthly expenses were $5490 but Westpac instead relied on the HEM figure of $2170, leaving a $3320 deficit when assessing the loan.

The parties will return to court on May 19 for a further preliminary hearing.