In a turn of events that surprised even QED, on Tuesday the judgment in the landmark ASIC v Westpac responsible lending case was handed down in resounding favour of Westpac.
Notwithstanding any appeal, the judgement has a resounding impact on how serviceability and, particularly, living expenses should be assessed. The judgement drives home two themes that QED has been stressing for some time:
- In assessing an individual consumer's financial situation, it is appropriate to compare the consumer with what other, similar looking consumers spend; and
- Whilst responsible lending and likelihood-of-default models might not be exactly the same thing, they achieve the same, common outcome
Whilst QED is elated with the findings of Justice Perram, we do wish to extend a word of caution to all brokers. It may happen that ASIC will appeal this decision, seeking it be overturned. For this reason, we would advise caution and ask brokers to hold off on making any significant changes to their processes, at least until the updates to RG209 are released later this year.
Ultimately, our hope is very much that the legal system will prevail in correctly appreciating that the Act does not prescribe a particular method for verifying serviceability and living expenses in due time. However, please consider the potential risk you may be exposing your business to if you choose to rely on the findings of this latest case too soon.