The financial regulator has appealed against the Federal Court's decision to dismiss a landmark case against Westpac that alleged the bank approved mortgages without properly checking applicants' credit.
The Australian Securities and Investments Commission says last month's finding by the Federal Court that Westpac had not breached the Credit Act's responsible lending provisions created uncertainty over lenders' obligations and was inconsistent with the aims of the responsible lending regime.
"The Credit Act imposes a number of legal obligations on credit providers, including the need to make reasonable inquiries about a borrower's financial circumstances, verifying information obtained from borrowers and making an assessment of whether a loan is unsuitable for the borrower," ASIC commissioner Sean Hughes said in a statement.
In a case with implications for the way all lenders assess loan applications, ASIC alleged that Westpac breached its responsible lending obligations in the way it assessed home loans over a three-year period.
But Justice Nye Perram dismissed the test case, saying living expenses declared by customers on applications do not on their own show capacity to meet repayments under a loan.
He said consumers may choose to forgo living expenses such as spending $500 a month on wine or flying first class to the US every year in order to meet repayments.
"I may eat Wagyu beef every day washed down with the finest shiraz but, if I really want my new home, I can make do on much more modest fare," Justice Perram said.