Sneha Kumar and Byron Kaye

(Reuters) - The mortgage brokerage unit of second lender Westpac used fake payslips from non-existent employers to approve the home loan in a lawsuit filed on Wednesday, the Australian company's corporate regulator said.

The Australian Securities and Investment Commission (ASIC) said Rams Financial Group, a subsidiary of Western Pacific, closed the business last year, engaging in widespread undocumented practices from June 2019 to April 2023.

The regulator filed a charge in a statement of fact agreed by Westpac, filed a federal civil lawsuit and published Wednesday.

The agreed statement said that in some cases it is unclear where the origin of the false documents is, but in other cases “the Rams franchisees or their employees… intentionally submitted loan applications backed by false documents or information, or were accomplices in doing so.”

The actions created “the opportunity to provide loans to clients who may not be eligible for these loans, thereby increasing commissions received by RAMS franchisees,” ASIC Vice Chairman Sarah Court said in a statement.

ASIC added that RAMS has acknowledged dealing with unlicensed mortgage operators and failed to properly monitor its representatives and other shortcomings.

Westpac said in a statement that the Rams have agreed to finalize the matter in court and “will continue to work with ASIC to resolve the proceedings as soon as possible.”

In 2019, the Royal Commission announced widespread allegations that financial companies failed to conduct sufficient due diligence before approving loans, resulting in stricter regulation.

Asic said it is seeking unspecified financial fines for the Rams. Westpac said it expects its existing regulations to be sufficient to cover the costs of the lawsuit.

Westpac shuts the Rams to new home loans in 2024 while continuing to retain ongoing loans. The closure prompted RAMS franchisees to file a class action lawsuit against Westpac, claiming it improperly terminates viable businesses and ultimately responsible for loan handling errors.

A franchisee spokesman said the franchisee had not consulted in the ASIC investigation, "the results of the "systematic organizational governance failure" of the Ram, and the inadequate regulation reflects the attempts to transfer agency failures to franchises in the Western Pacific region."

The date of the first hearing between ASIC and Westpac has not been scheduled.

(Reported by Sneha Kumar in Bangalore and Byron Kaye of Sydney; Edited by Mohammed Safi Shamsi and Michael Perry)