Newspaper advertisements were run last week and letters and emails have been sent out to potential class action members.

Flex commissions were banned by ASIC from 1 November 2018, and the class action case relates to the flex commission sales that operated in the years leading up to the ban.

The defendants in the action, being run by Maurice Blackburn Lawyers, are Esanda and the ANZ Banking Group as well as Macquarie Leasing plus Westpac and St George.  

The action is being divided into three separate cases against Westpac and St George in relation to Westpac’s auto finance business; ANZ and Macquarie Bank in relation to Esanda’s car loan business up until 2016; and Macquarie Leasing.

Macquarie Leasing is included because it acquired the Esanda car dealer loan portfolio from ANZ in 2016.

The cases are being case-managed by the same Judge, her Honour Justice Nicholls of the Victorian Supreme Court.

These are the only financiers in the action which does not include any of the captive financiers operated by the OEMs in Australia. 

Richard Ryan, principal lawyer with Maurice Blackburn Lawyers told GoAutoNews Premium: “While we understand that OEM’s also may have charged flex commissions, we understand that they may have “flexed” less aggressively than the three financiers. 

“That is because OEMs had revenue streams connected to the primary car product – including car sales, servicing and brands and other products – which gave them access to a greater range of revenue streams and more flexibility in the pricing of car loans.”

The plaintiffs are seeking the cessation of payments of interest or repayment of the interest on the affected loans or an order to void the affected loans and pay compensation to the group members.

The class action was first commenced as far back as 2020 but it has now reached the stage where mediation has been ordered for December 15 this year. The Supreme Court of Victoria has ordered that the final members of the class action be registered in the lead up to that mediation date.

Maurice Blackburn Lawyers says that more than a million buyers are entitled to join in the class action and that they were being contacted, based on details of borrowers supplied by the defendants, to register or opt out.

The deadlines are:

• For group members in the ANZ (Esanda) Flex Commission Class Action, the deadline for registering is 28 September 2023.
• For group members in the Macquarie Leasing Flex Commission Class Action, the deadline for registering is 3 October 2023.
• For group members in the Westpac & St George Flex Commission Class Action, the deadline for registering is 12 October 2023.

Court documents say the plaintiff alleges that car dealers acted on behalf of these banks/financiers in providing certain credit services to class action group members who took out car loans through those dealers. 

The claim alleges that “flex commissions” were paid to those car dealers and that certain features of the flex commission arrangements were unfair and/or not disclosed to consumers who paid higher interest rates on their car loans than would otherwise have been the case.

It is claimed that the defendants are responsible for the flex commission arrangements and alleged non-disclosures, and that banks concerned should therefore pay compensation in the form of money to consumers for the alleged loss they have suffered as a result. 

The claim seeks to restrain the lenders from charging further interest, seeks the repayment of interest under the loans, or alternatively seeks to void the loan agreements or provide compensation to group members.

The court papers say the defendants deny the claims made against them and are defending the class action.

The Court has ordered the parties to attend a mediation by 15 December 2023.

The Maurice Blackburn website describes a flex commission as “a payment made by a lender to a car dealer depending on the interest rate and length of a car loan that the dealer arranged for the lender with a consumer”. 

“The flex commission increased as the interest rate and/or term of the car loan increased. In general, the more a consumer paid in interest, the higher the flex commission would be.

“The plaintiffs allege that this arrangement incentivised car dealers to increase the interest rate and/or the length of car loans, in order to increase their flex commission, and consequently, consumers paid more than they otherwise would have.”

“When a consumer bought a car and arranged their car finance through a car dealership, the car dealer set the rate of interest on a car loan at or above a base rate and below any cap set by the lender,” the website said.

“The car dealer had discretion to increase or decrease the interest rate without reference to the risk profile of the car loan or consumer. The lenders also benefited from the commission because the “flex amount” was shared between the bank and the car dealer.

“The plaintiffs claim that consumers were not told or informed of the existence of the Flex Commission, how it was calculated, or the amount paid in relation to their car loan when they should have been.”

The Financial Services Royal Commission Final Report 2018 said: “Many borrowers knew nothing of these arrangements. Lenders did not publicise them; dealers did not reveal them. The dealer’s interest in securing the highest rate possible is obvious. It was the consumer who bore the cost.”

The website says: “The plaintiffs say flex commissions were unlawful because they are in breach of legislation prohibiting ‘unfair or dishonest conduct’ and ‘misleading and deceptive conduct’.

The Financial Services Royal Commission Final Report, 2018 said: “For all the borrower knew, the interest rate the dealer quoted had been fixed by the lender. But, whenever the dealer quoted a rate larger than the base rate, the dealer was acting in its own interests.”

The plaintiffs also claim that interest paid on the car loans was “money unjustly received” and caused “unjust enrichment” of the defendants.

“The effect of the practice was that consumers could be charged significantly different interest rates from the same intermediary, depending on their ability to negotiate that rate. 

“For example, the same car dealer on the same day could set the interest rate at 6.5 per cent for one consumer and 15.15 per cent p.a. for another consumer even though they bought the same model of vehicle for similar value.

“The plaintiffs allege that car dealers are the representatives of the banks or finance companies in relation to the car loans and the banks or finance companies are responsible for their actions.”

Footnote regarding costs: According to the Court papers, the Court has set the rate of the group costs at 24.5 per cent of any monetary amount, although the Court may vary the amount in the future.

For each $1 million a bank is ordered to pay the group, if the action is successful, Class action members will share in $755,000 and Maurice Blackburn Lawyers will be paid $245,000 “for the work they performed on behalf of the group members in the class action”. 

The Court can decide to lower the rate of the group costs order if it would result in the lawyers for the plaintiff being paid an excessive amount of money compared to the work they have performed.

The lawyers for the plaintiff will be required to pay any costs payable to the defendants (the banks) if the class action is unsuccessful or give any security for costs that the Court may order in the class action.

No amounts will be paid from any settlement or judgement to Maurice Blackburn for the work they have done, unless the Court approves those amounts.

Read more: ‘ASIC to prohibit flex commissions but …’

By John Mellor