The corporate watchdog is taking Westpac to court for allegedly approving home loans without properly assessing whether the borrowers could meet repayments.
The Australian Securities and Investments Commission claims the bank did not manually assess applicants' living expenses and instead relied on a statistical benchmark for seven loans approved between December 2011 and March 2015, worth between $315,000 and $1.25 million,
The bank was required to assess applicants manually under the National Consumer Credit Protection Act, the regulator said.
In its filing with the Federal Court, ASIC says in the case of a $1.17 million loan with a 10-year interest-only period, assessment using declared living expenses rather than the benchmark would have shown a monthly shortfall of $1,128.07.
The shortfall would have been $2,570.07 after the interest-free period, ASIC alleges.
The regulator is seeking an order that Westpac contravened the Act by not assessing the loan as unsuitable.
The bank said it will defend the allegations and that all loans at the centre of ASIC's allegations are currently meeting or ahead in repayments.
"It is not in the bank's or customers' interests to put people into loans that they cannot afford to repay," Westpac's consumer bank chief executive George Frazis said in a statement.
"It goes hand in hand that we have robust credit approval processes while helping customers purchase their home.
"Our credit policies are informed by our deep experience and understanding of the mortgage market."
The first hearing in the case is in Sydney on March 21.
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