Westpac faces potential class action lawsuit over auto loans that allowed dealers to inflate interest rates
Westpac is facing a possible class action lawsuit on behalf of thousands of Australians who took out auto loans under a since-banned program that allowed dealers to set exorbitant interest rates.
- Shine Lawyers to launch class action lawsuit alleging Westpac failed to act honestly and fairly
- Flexible commissions allowed car dealers to charge customers an interest rate higher than the base rate set by the bank and receive a larger commission
- Banks and financial institutions have faced a plethora of customer and shareholder class actions since the Royal Banking Commission
Shine Lawyers plans to file a lawsuit – the latest a multitude of disputes between clients and shareholders of the Royal Banking Commission – before the Federal Court in the coming weeks.
Until November 2018, the so-called “flexible commission” structure had allowed auto dealers and brokers to set the interest rate on auto loans above a base rate set by the bank or lender and reduce the difference.
This meant that the higher the interest rate, the larger the commission paid to the car dealership.
“If you purchased a car from a dealership using ‘in-store’ financing for personal use from July 2014 through November 2018, you may have been the victim of a flexible car loan repayment,” he said. said Vicky Antzoulatos, head of class actions practice at Shine Lawyers. .
The class action lawsuit will be open to car buyers who have taken out personal loans with Westpac, or its affiliates St George, Bank of Melbourne and Capital Finance, through a car dealership during that time.
Rival law firm Maurice Blackburn is also investigating a class action lawsuit over flexible commissions, which will also include car buyers who have taken out loans through Esanda, ANZ and Macquarie Bank.
Ms Antzoulatos said Shine is currently focusing its case on Westpac as it has the largest market share.
Borrowers unaware of commission terms
Shine Lawyers alleges that Westpac and its subsidiaries violated their legal obligations to act fairly and honestly when granting loans.
“The dealers have financed cars while failing to disclose the interest rate on the loans that was arranged with the lender in exchange for commissions,” Ms. Antzoulatos said.
“The bank and its subsidiaries did not disclose to consumers the true nature of their commission structure with car dealers, and we will allege that this was illegal.”
In the final report of the Royal Banking Commission, Commissioner Kenneth Hayne gave a scathing assessment of flexible commissions and their lack of transparency.
“Many borrowers did not know about these agreements. The lenders did not make them public; the dealers did not disclose them,” Mr. Hayne wrote.
Ms. Antzoulatos described the flexible commissions as leading to “fraudulent loans”, which made things worse for some clients by thousands of dollars.
“In some cases, customers who bought the same car or a vehicle of similar value on the same day were charged between 6.5% and 15.5% interest on top of the base rate,” he said. she declared.
“The difference in commission on the sale of these loans was $ 315 and $ 10,823, respectively.”
The Australian Securities and Investments Commission (ASIC) banned flexible commissions from November 1, 2018, fearing they could lead to very high interest rates, especially for vulnerable consumers.
Consumer advocates had criticized the loan structure for placing more emphasis on a car buyer’s ability to haggle with the dealership than on their creditworthiness or financial standing.
Westpac kept commissions flexible as ban loomed
The industry has been given more than a year’s notice of the impending ban, which now carries fines of up to $ 420,000 per violation.
Following the ban, lenders and banks rather than dealers are responsible for determining the interest rate on a particular car loan, and dealers cannot suggest a different rate to earn more commission, but have a limited ability to offer a discount.
During the royal banking commission, Westpac in particular was in the crosshairs of the investigation into its handling of auto loans.
Although it supported the removal of flexible commissions and the introduction of a cap on the rate that auto dealers could charge, Westpac told the inquiry that it still uses the commission structure while the ban ASIC was looming in a few months.
He argued that he could not unilaterally stop using flexible commissions and remain competitive in the auto loan market.
Mr. Hayne described this as a “first-mover disadvantage” problem, in which regulatory intervention was needed to effect the change, although industry participants recognized the need for it.
Then-managing director Brian Hartzer was asked whether Westpac’s policies might have prompted dealers to make inappropriate loans in order to earn a commission, to which Mr Hartzer replied: “I couldn’t tell. I am not a car dealership.”
“The evidence that Westpac representatives provided to the royal commission shows that Westpac knew these types of loans would lead to bad results, and we believe that with this knowledge their conduct was particularly egregious,” said Antzoulatos.