Major banking chain Westpac has reached a $35 million settlement with ASIC as a penalty for approving over 10,000 illegal home loans.

The bank is set to pay the penalty in order to put the case to rest, which has been pursued by Australia’s corporate regulator; the Australian Securities and Investments Commission (ASIC).

ASIC has said that this marks the most expensive civil penalty given under the National Credit Act.

Westpac has admitted that it used the HEM (Household Expenditure Measure) to calculate the living costs of potential borrowers in an automated loan approval process. Basically, the HEM is considered a low estimate of basic living expenses, leading people to agree to loans they could not realistically pay.

Instead of individually investigating the applicant’s declared living expenses, Westpac admits it opted to rely on the HEM. The bank has admitted its actions were in breach of the National Consumer Credit Protection Act, designed to protect consumers from predatory lending practices.

The case was launched by ASIC in March 2017 and used seven individual case studies to demonstrate how the bank used the HEM benchmark instead of evaluating the customer’s declared expenses.

In 2015, Westpac changed its lending policies, meaning that all applicants have their loans assessed by whichever is higher; their declared expenses or the HEM.

The action from ASIC also alleged that Westpac did not make an attempt to assess whether interest-only applicants could continue to repay without financial hardship after the end of their interest-only period.

ASIC stated that Westpac had used the automated home-loan system for about 260,000 loans between December 2011 and March 2015. Of that number, roughly 50,000 used the HEM benchmark despite the applicants’ declared expenses being higher. Another 50,000 were found to have used the incorrect repayment calculation for interest-only arrangements.

Of the total, ASIC says that around 10,500 of the loans should not have been approved.