Royal commission aftermath: Westpac faces class action, ANZ vows to improve

Westpac is facing a class action for allegedly approving home loans to people who could not afford them, in breach of responsible lending laws.

Maurice Blackburn lawyers filed an open class action against Westpac in the Federal Court today on behalf of aggrieved borrowers who allege the bank gave them unsuitable loans.

This comes in the wake of the banking royal commission’s year-long investigation, which highlighted some lenders use of a low estimate of basic living expenses, known as the household expenditure measure (HEM), rather than verifying people’s expenses.

Maurice Blackburn Principal Lawyer Ben Slade said thousands of people across Australia have suffered substantial losses due to Westpac failing to comply with its lending obligations, and if thousands chose to take part in the action, the total value of the claim could be in the tens of millions of dollars.

Lead plaintiffs Ian and Michelle Tate, who have three children and one regular income, say Westpac lent them five loans worth a combined $1.8 million across five properties from 2008 to 2016.

Ms Tate said Westpac had “devastated us” by not lending responsibly and that they have lost most of their properties except one block of land.

“Everything we were trying to achieve is lost. Instead of striving for financial independence, we are back to living pay cheque to pay cheque, tax return to tax return,” she said.

“We have gone backwards after years of hard work and struggle. It is worse than being back to square one.”

Westpac has issued a statement saying it takes its responsible lending obligations seriously and will be defending the claims against it.

“Westpac works closely with customers who experience financial difficulty to provide tailored assistance as required,” the statement said.

The major bank had struck an agreement with the Australian Securities and Investment Commission (ASIC) last year to pay a $35 million civil penalty for breaching responsible lending obligations.

But the Federal Court rejected the settlement in November with Justice Nye Perram saying it was difficult to judge the appropriateness of the proposed penalty because ASIC and Westpac were unable to agree on how many loans breached the National Consumer Credit Protection Act.

This was despite Westpac admitting that it did contravene lending laws.

ASIC has claimed that Westpac should not have approved about 10,500 home loans issued during 2011 and 2015, after relying solely on an automated system to approve about 260,000 home loans in that period.

The corporate regulator said the system did not factor in consumers’ declared living expenses when assessing their capacity to repay home loans and that it failed to identify whether owner occupiers with interest-only loans could afford higher repayments once that period expired.

ANZ revamps banking policies in the wake of the royal commission

Also this week, ANZ has vowed to improve its banking practices in direct response to the banking royal commission’s final report that became public earlier this month.

ANZ has announced 16 initiatives aimed at improving the way it treats customers, including small businesses and farmers in Australia.

The steps the bank says it is taking immediately include:

• Publicly reporting how the bank is fixing significant failures, including the remediation of customers
• Strengthening accountability so that when things go wrong, they are fixed and executives are consistently held to account
• Proactively contacting customers paying little off persistent credit card debt
• Creating a dedicated phone service and easier account identification options for Indigenous customers
• Not charging farmers default interest in areas hit by drought or other natural disasters
• Providing farmers with early access to farm debt mediation
• Making products fairer and better matched to customers, including removing overdrawn fees from Pensioner Advantage accounts

ANZ Chief Executive Shayne Elliott said this was only the first step and acknowledged that the cultural changes needed to be made would take several years.

“We will continue to make the investments needed to improve our bank and we will also move quickly to implement the recommendations requiring legislative change once those new laws come into effect,” Mr Elliott said.