Class action law firm Maurice Blackburn has alleged that a big four bank colluded with external parties to tie up borrowers in “unfair high-interest loans”.
Law firm Maurice Blackburn has commenced a class action in the Victorian Supreme Court against Westpac and its subsidiary St.George Finance Limited, alleging they colluded with car dealers to lock consumers into “unfair high-interest” car loans from 1 March 2013 to 31 October 2018.
The firm alleged that the banks failed to inform consumers that agreements were in place with car dealers, which allowed them to increase base rates to earn “substantial flex commissions”.
Maurice Blackburn claimed that in some cases, consumers were charged interest rates more than 10 per cent above the base rate and were not informed of the interest rate until after they agreed to purchase the car.
The firm added that in many cases, the higher interest rates set by car dealers did not reflect the consumer’s credit risk profile but were instead “crudely used to boost the profits of car dealers and Westpac and St.George Finance”.
The Australian Securities and Investments Commission (ASIC) has since banned the payment of flex commissions by lenders to car dealers and finance brokers following a consultation process, which found that the practice had delivered poor consumer outcomes.
Lenders now have the responsibility for determining the interest rate that applies to a particular loan, but car dealers still have the capacity to discount the interest rate and receive lower commissions, leading to lower costs for credit.
According to Maurice Blackburn’s national head of class actions, Andrew Watson, hundreds of thousands of consumers were affected by the practice.
“The expectations of consumers were that the dealer was a conduit for, but was not setting, the interest rate. 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.”
ASIC data suggests that there are approximately 400,000 consumers who may have been impacted by alleged misconduct by Westpac and St.George Finance.
One of the lead applicants in Maurice Blackburn’s class action lawsuit, Alannah Fox, commented: “They didn’t tell me the interest rate until I went to pick up the car. We bargained hard on the initial price, but I believe they knew what they were doing and slugged me with the high interest rate to compensate.
“Banks and car dealerships ripped off so many unsuspecting car buyers. I feel they targeted me because I was young and eager to get in to my first new car. My advice to other car buyers is shop around and make them explain to you exactly how the loan works and where the money is going.”
In a statement released on the ASX, Westpac Group confirmed that it has been served with the class action, adding it “will be defending the claim” in Victorian Supreme Court.
The group also acknowledged that “other similar claims” may also be filed.
This is the latest of a number of class actions filed against Westpac, which include allegations of “systemic non-compliance” with anti-money laundering and counter-terrorism financing laws.
[Related: Westpac cops another class action]
Charbel Kadib is the news editor on the mortgages titles at Momentum Media.
Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.