The first to face court is Westpac, against which one legal firm involved in one of the class actions is claiming 400,000 consumers are involved.
Maurice Blackburn Lawyers told GoAutoNews Premium that the current action was against Westpac but that loans by other financiers were being reviewed.
A second law firm with class action is Shine Lawyers which has also launched action against Westpac and its subsidiaries.
Maurice Blackburn last week started the Westpac class action in the Victorian Supreme Court.
In its statement, it alleges that Westpac and St George Finance “colluded with car dealers to sting consumers with unfair high interest loans in Australia’s multi-billion dollar car finance industry”. Westpac says it will be defending the class action.
The law firm said that “based on ASIC statistics, it appears that there are approximately 400,000 class members, many of whom should be compensated for the (alleged) overcharging by Westpac and St George.”
The court documents lodged by Maurice Blackburn Lawyers and viewed by GoAutoNews Premium cover 53 pages and cite two cases – a woman who bought at new Hyundai ix35 SUV from a Melbourne Hyundai dealer in 2015 for $43,390 on a loan over 84 months at 12.99 per cent; and a second woman who bought a new Nissan Qashqai from a Nissan dealer in Queensland for $42,647 on the same rate and loan period.
Maurice Blackburn’s statement said that the first plaintiff was a 25-year-old teacher’s aide who bought the Hyundai and had an interest bill on the car of almost $25,000. The second plaintiff had a similar interest bill.
The documents state the women were not made aware of the interest rate or the loan period until the contract was signed and that the dealers set those figures.
In a statement, Maurice Blackburn national head of class actions Andrew Watson said “hundreds of thousands of consumers were affected by the practice, unaware that the interest rate on their car loans was inflated by the dealership in return for undisclosed kick-backs.”
“The expectations of consumers was that the dealer was a conduit for, but was not setting, the interest rate,” Mr Watson said.
“It is safe to assume that most consumers understood that the roles of car dealers and lenders were distinct.”
Mr Watson said: “This case will seek to prove that Westpac and St George failed to comply with their obligations under consumer credit protection laws and that this failure caused substantial losses for many consumers,” he said.
He said that in some cases consumers were made to pay interest rates that were more than 10 percentage points above the underlying base rate offered by the bank.
In many cases, consumers were not told of the loan’s interest rate until after they agreed to purchase the car.
The class action relates to “flex commissions” on car loans taken out from Westpac and St George between March 1, 2013 and October 31, 2018.
On November 1, 2018, the Australian Securities and Investments Commission (ASIC), on receipt of the findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and on months of contacting affected motorists, formally banned flex commissions in the car finance market.
ASIC said flex commissions were paid by lenders to car finance brokers (typically car dealers), allowing the dealers to set the interest rate on the car loan. The higher the interest rate, the larger the commission earned by the dealer.
The practice was banned because ASIC said it led to consumers paying excessive interest rates on their car loans.
At the time of the enforcement, ASIC deputy chair Peter Kell said: “We found that flex commissions resulted in consumers paying very high interest rates on their car loans. We were particularly concerned about the impact on less financially experienced consumers.”
The Maurice Blackburn action claims that borrowers were not told that Westpac and St George “had a cosy deal with car dealers that allowed the car dealers to hike up the interest rates on car loans from a ‘base rate’ in order to earn substantial ‘flex commissions’.”
The lawyers said: “In some cases, consumers were charged more than three times the base interest rate set by Westpac and St George.
“In many cases, the higher interest rates were not determined by objective criteria such as credit risk, but were crudely used to boost the profits of car dealers and Westpac and St George.”
The Financial Services Royal Commission findings in 2018 said: “The dealer’s interest in securing the highest rate possible is obvious. It was the consumer who bore the cost. To the borrower, the dealer might have appeared to be acting for the borrower by submitting a loan proposal on behalf of the borrower. The borrower was given no indication that in fact the dealer was looking after its own interests.”
By Neil Dowling
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