Westpac May Face Court Action Over Flex Commission Interest Rates on Car Loans
Friday 24 July 2020 @ 11.56 a.m. | Legal Research
According to a number of news reports, Westpac is facing a potential class action on behalf of thousands of Australians who took out car loans under a since-banned scheme that allowed dealers to set exorbitant interest rates.
The flex arrangements were a feature of the car industry for over 25 years before the practice was outlawed by ASIC and condemned by the Final Report of the Financial Services Royal Commission.
Until November 2018, the so-called “flex commission” schemes had allowed car dealers and brokers to set the interest rate on car loans above a base rate set by the bank or lender and take a cut of the difference, which meant the higher the interest rate, the bigger the commission paid to the car dealer.
The Proposed Class Action
In the latest announcements of customer and shareholder lawsuits to arise from the Banking Royal Commission, Shine Lawyers (“Shine”) plans to file a case in the Federal Court, the class action will be open to car buyers who took out personal loans from Westpac (or its subsidiaries St George, Bank of Melbourne and Capital Finance), through a car dealer from July 2014 to November 2018.
Shine’s Class Action Practice Leader Ms Vicky Antzoulatos is quoted as saying:
Shine’s Class Action Practice Leader Ms Vicky Antzoulatos said Shine is “currently focusing its case on Westpac because it had the largest market share”.
In a similar set of circumstances, Maurice Blackburn is also investigating a class action over flex commissions, which will additionally encompass car buyers who took out loans through Esanda, ANZ and Macquarie Bank.
Borrowers Unaware of the Commission
Shine will allege Westpac and its subsidiaries breached their legal obligations to act fairly and honestly when providing loans. Ms Antzoulatos said:
The Banking Royal Commission
In his Final Report into Misconduct in the Banking, Superannuation and Financial Services Industry, Kenneth Hayne said of flex commissions and their lack of transparency [see pages 84-85]:
Banking Industry and Flex Commissions
According to ABC News, the industry was given more than a year's notice of the impending ban, which now attracts fines of up to $420,000 per breach. Following the ban, lenders and banks rather than dealers have responsibility for determining the interest rate on a particular car loan, and dealers cannot suggest a different rate to earn more commission, but do have a limited capacity to offer a discount.
During the Banking Royal Commission, Westpac in particular was questioned over its handling of car loans. Despite supporting the removal of flex commissions and introducing a cap on the rate car dealers could charge, Westpac told the inquiry it was “still using the commission structure” as ASIC's ban loomed just months away. Westpac argued it could not unilaterally stop using flex commissions and still compete in the car loans market.
The then Chief Executive of Westpac, Brian Hartzer was questioned in the Banking Royal Commission about whether Westpac's policies could "have incentivised dealers to make unsuitable loans in order to obtain a commission", to which Mr Hartzer responded: “I couldn't say. I'm not a car dealer.”
Ms Antzoulatos commented:
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