Originally, the bank had admitted to breaching its responsible lending obligations, and agreed to penalty payment of $35 million, with that joint request placed before the court.

It was this application that ultimately resulted in yesterday’s decision to dismiss the application by Justice Nye Perram, who cited reasoning that the alleged breach was not grounded in fact.

“The act does not operate as ASIC alleges” was how the Federal Court judge began his remarks.

Justice Perram said it was enough to say that as far as the consumer’s financial position is concerned, “the act requires a credit provider to ask itself only whether ‘the consumer will be unable to comply with the consumer’s financial obligations under the contract’ or, alternatively, whether the consumer ‘could only comply with substantial hardship’”.

His honour accepted that the act requires a credit provider to ask the consumer about their financial situation and, in turn, to ask itself whether compliance would be possibly using one of the two questions above.

However, he did not accept that “this had the further consequence that the credit provider must use the consumer’s declared living expenses in doing so”.

Going as far as to call out the act’s silence on how a credit provider is to answer the compliance questions, Justice Perram considered that the act contains no express statement to that end, nor could such a requirement be implied as a necessary part of the provider’s consideration.

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“One may ask what knowing that a consumer currently spends $500 per month on wine tells one about whether the consumer can afford the repayments on a proposed two million dollar loan, or whether, while able to afford to make the repayments on that loan, the consumer could do so only by being placed in circumstances of substantial hardship,” the judgment continued.

This was “a case about the operation of the responsible lending laws without any allegation of irresponsible lending”, Justice Perram summarised, as he said there were no individual cases evidenced by ASIC to show that Westpac had engaged in irresponsible lending.

ASIC’s response

Hours after the decision was handed down, ASIC responded to the decision, calling the case a “test case”.

ASIC Commissioner Sean Hughes said ASIC is carefully reviewing the judgment, and explained that the regulator “took on the case against Westpac because of the need for judicial clarification of a cornerstone legal obligation on lenders”.

“As a regulator, it is our role to test the law and its ambit,” he continued.

“The obligation to assess loan applications builds on the requirement for banks to make inquiries about a borrower’s financial circumstances and capacity to service a loan and to verify the information that borrowers give banks”.