The results are frustrating for all parties involved, particularly given that one of the main reasons for all this risk-adverse regulation introduced by the Australian Securities and Investments Commission (ASIC) last year was to protect consumers from excessive loan interest rates.
The Australian Automotive Dealer Association (AADA) has told GoAutoNews Premium that obtaining finance was becoming much harder than ever for customers as a fallout of the royal commission into banking.
AADA CEO James Voortman said it “has made financial institutions pretty risk adverse” and dealers – and customers – were the losers.
The trigger for the ASIC action was the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry – aka the Banking Royal Commission and the Hayne Royal Commission – that lasted 14 months before declaring its results in February this year.
ASIC commissioner John Price said in a speech in Melbourne on February 28 that ASIC was “committed to accelerating enforcement activities, conducting more civil and criminal court actions against larger financial institutions and, as a starting point for all enforcement matters, asking the question, ‘Why not litigate?’”
Mr Voortman said: “Lenders are insisting on greater levels of scrutiny being applied to applications and we are having a situation where finance companies are insisting dealers have strict verification processes for income but also for consumer expenses.
“They are looking for information on things whether the applicant is spending a lot on dining out or if they have a Netflix account. It’s all having a massive effect,” he said.
“We have dealers telling us that about one quarter of their applications are being knocked back (by financial institutions) and in some instances, depending on the dealer, it can be as high as 50 per cent.
“You are also seeing a lot longer timeframes, so yes, it’s all having a big effect. The timeframes for applications over the past year have probably gone from 24 hours where you could apply in the morning and get it turned around in 24 hours.
“Now it is around three days. It adds to the difficulty in the process.”
With customers facing being knocked back on a loan application, we asked Mr Voortman where he thought buyers went to get funds for a car.
“I think customers hold back. There’s evidence from the sales numbers that they are holding back with cars being more reliable than ever before, plus the fact it’s a purchase that they can delay, they may just decide they don’t need to replace their current vehicle,” he said.
“There are other places where they can get finance. The dealers service about 33 per cent of the people who finance a car so there are other avenues. We can only speak for that one third of the market.
“There are concerns that the customers will go to a less credible, less reputable finance company and be charged a much higher interest rate.
“They probably won’t have access to the innovative finance products that the dealers are bringing to the market such as guaranteed future value and they won’t have the convenience of a one-stop shop solution which is attractive to many of the consumers who take up finance at the dealership.”
He said the evidence that many potential buyers were holding back is seen in the car sales numbers. VFACTS figures show that to the end of July this year, sales are down 15.8 per cent for passenger cars and down 3.6 per cent for SUVs – a drop of 47,452 vehicles combined – and the flow-on effect has dented used-car business without the trade-ins that usually come with new-vehicle purchases.
Mr Voortman said the banking royal commission has frustrated the consumer.
“They have gone from an environment where they had a solid income and a system of expenses that led to them being able to obtain credit, to an environment where not much has changed in the income and expenses side, but they are being scrutinised to the extent that they can’t get that credit,” he said.
“I wouldn’t be surprised if those consumers go elsewhere because of ASIC’s action and the action of lenders. The royal commission has resulted in adverse situations for the consumers.”
Mr Voortman said the recent win in the courts by Westpac Banking Corporation – which last year was ordered by ASIC to pay a $35 million settlement to customers in a breach of responsible lending practices, but this month had the Federal Court dismiss ASIC’s case – related to home loans but had repercussions for the car finance sector.
“In that case ASIC has basically expecting the lender to scrutinise the consumer,” Mr Voortman said.
“But the judge makes the point that there is a responsibility by the consumer to moderate their expenses in the event of taking out a loan. They could cut back on school fees or reducing the number of times they eat out or even look at buying a cheaper car.
“This is the issue with risk aversion. We have a situation where the banks are charged with this responsibility of scrutinising every element of a customer’s financial viability.
“I’m not saying that it’s not a good thing. We have responsible lending laws and they should be observed. But I suppose we should ask the question: What is within reason and how much of the responsibility is on the finance company and how much is on the consumer?”
Mr Voortman said the AADA would now make representation to ASIC and to the elected members of parliament.
“I know some (MPs) have raised concerns that we may have gone too far in terms of the provision of credit in being too risk averse,” he said.
“So those are the avenues we can pursue while making the case that this issue not only disadvantages businesses but consumers as well.”
Mr Voortman said the financiers were probably going to lose revenue under the new risk-averse environment “but maybe they are responding to the royal commission and they have had to look at the ‘people-before-profit’ mantra that came out of that”.
“But at what point do we move forward and free up credit so the economy can spring to life?” he said.
By Neil Dowling
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