The major bank has admitted to the royal commission that it did not undertake verification checks for loan applications submitted by car dealers.
Appearing before the financial services royal commission on Wednesday (21 March), Westpac’s general manager of specialist finance, Phillip Godkin, conceded that the bank had breached responsible lending provisions outlined in the National Credit Act.
Westpac was accused of approving an unsuitable car loan for a client whose income and expense claims were provided by a car dealer.
Clarifying the issues, Commissioner Kenneth Hayne asked Mr Godkin: “[There was no] Centrelink verification; old pay slips; casual, not part-time; no expenses; and some unresolved problem with the phone company — is that right?”
“That’s correct,” replied Mr Godkin.
Counsel assisting the commission Albert Dinelli put it to Mr Godkin that the car loan would not have been approved had Westpac complied with credit laws.
“So, it’s your evidence that, properly analysed, [the client] would have failed the credit processes having regard to proper responsible lending considerations, wouldn’t she?” Mr Dinelli asked.
“Yes,” Mr Godkin replied.
“[It] follows that Westpac’s position is that the car loan should never have been granted in the first place?” Mr Dinelli continued.
“Yes,” Mr Godkin said.
Mr Godkin admitted that, in most cases, the major bank still continues to rely on information provided by car dealers.
“It’s your evidence that it’s still the case that there is dependence by Westpac on the accuracy of the car yard business manager, what it tells the company?” Commissioner Hayne asked.
“[Yes], the answer is yes,” Mr Godkin responded.
Later in the proceedings, Commissioner Hayne asked: “Can you point to any stage in the process where expenditure is checked or verified?”
“[As] I said earlier, in the vast majority of cases, expenditure is not verified,” Mr Godkin said.
Westpac is the second major bank to admit that it failed to undertake checks of third-party applications, after ANZ was alleged to be “non-compliant with the National Credit Act, responsible lending obligations and with regulatory guides issued by ASIC” by not verifying “inconsistent” living expenses.
The bank also revealed that it was still paying flex commissions, despite the Australian Securities and Investments Commission (ASIC) formally banning the payment last year.
The remuneration arrangement enables car dealers to set the interest rate on a car loan at their discretion.
ASIC determined that under such arrangements, car dealers would be incentivised to apply a higher interest rate in order to receive a larger commission.
When asked by Mr Dinelli, Mr Godkin admitted that despite the ban, Westpac has continued to pay flex commissions to car dealers.
“Now, sitting here now, Westpac still allows flex commissions?” Mr Dinelli asked.
“That’s correct,” Mr Godkin replied.
[Related: ANZ accused of non-compliance with NCCP]