Financial regulator ASIC listened to calls from distressed debtors and spoke with various consumer advocacy groups, but Federal MPs have suggested the regulator still doesn't have enough evidence to justify its appeal of a responsible lending judgement.
ASIC told MPs it has appealed the Federal Court's Westpac loans case decision in the name of the nation's long-term economic confidence, and to prevent lending standards retreating after years of improvement.
But Coalition MPs on the parliamentary joint committee on corporations and financial services - including chairman and Liberal Senator James Paterson - argued the regulator was creating additional uncertainty for borrowers and lenders by pursuing the action.
Mr Paterson, along with fellow committee member and Liberal MP for Mackellar Jason Falinski, suggested ASIC's appeal stoked concerns over credit availability, and appeared to be based on insufficient evidence consumers had been affected by Westpac's former loan regime.
The hearing in Canberra follows the Federal Court's dismissal of ASIC's allegations Westpac approved mortgages without properly checking applicants' credit.
Justice Nye Perram said living expenses declared by customers on applications did not on their own show capacity to meet repayments, giving the example that someone could cut back on Wagyu beef and the finest shiraz if they really wanted a new home.
Mr Shipton said ASIC had come to the conclusion, supported by advice from its senior counsel, there was a need to provide greater certainty, clarity and confidence to lenders to lend responsibly.
"The interests of certainty ... and therefore the broader economy ... and therefore consumer protection would be best served (by this appeal)," Mr Shipton said.
"There would be a greater harm in not appealing, as a result of the issues that we have and our senior counsel has."
Mr Paterson, however, said the feedback he had gathered from the financial industry indicated the Federal Court's decision had been well received.
Senator Paterson said he was concerned with the "policy implications" of ASIC's appeal, and added that anecdotal evidence of financial harm was "not very strong evidence" to support the regulator's action.
"Is it (because of) the view of a consumer activist group?" Mr Paterson asked.
When asked to provide specific evidence of harm done to borrowers under Westpac's previous loan regime, ASIC said the purpose of the appeal was not to focus on individual loans, rather the structural integrity of the lending system and potential harm awaiting consumers if standards slipped.
ASIC said it had been provided data and case studies by community service organisations, with board members also seeing first hand the impacts of irresponsible lending during debt call centre visits.
"The challenge for this particular area ... financial hardship does not necessarily manifest itself immediately or in the short or medium term," Mr Shipton said.
"It could take place at a later place in time."
The corporate regulator told the committee on Friday its appeal of the decision by Justice Perram was a lesser disruption to borrowers, lenders and the economy than the potential impacts of the ruling itself.
Mr Shipton said the appeal was "forward-looking consumer protection" and a salve for the lingering uncertainty around what constitutes responsible lending.
"There is the risk indeed that lenders will (now) say that whatever is in ASIC's guidance ... and whatever is said in the (credit) act ... they'll act anyway," Mr Shipton said.
"We're concerned that standards in responsible lending may very well drop."
Mr Shipton said it was not ASIC's intention to make it harder for lenders to lend, prevent borrowers from accessing money, or put the brakes on the economy.