Law firm Maurice Blackburn has launched a class action lawsuit against Westpac on behalf of hundreds of thousands of car buyers who were sold vehicle loans under a deal that allegedly allowed dealers to secretly pocket vast commission payments.
Dealers were able to maximise commissions Westpac and its subsidiary, St George, paid them for selling the loans by charging some customers as much as three times the bank’s going interest rate, it is claimed.
One of the lawsuit’s lead applicants, Alannah Fox, paid almost $25,000 in interest on a $47,000 car loan, according to Maurice Blackburn.
The so-called “flex commission” loans were common practice in the car industry until October 2018, when they were banned by the corporate regulator.
They were also condemned by the banking royal commissioner, Kenneth Hayne, in his final report, tabled in February last year.
In its lawsuit, filed in the Victorian supreme court on Thursday, Maurice Blackburn alleged borrowers weren’t told about the kickbacks to car dealers for selling them the finance.
The royal commission heard evidence that Westpac didn’t cap the amount of interest dealers could charge until August 2016.
“If the dealer could persuade the borrower to agree to pay a higher rate, the dealer received a large part of the interest payable over and above the base rate,” Hayne said.
Westpac told the commission it recognised that the flex commission might encourage dealers to put their interests before those of consumers.
However, it also said it did not want to put a stop to the practice before the ban imposed by the Australian Securities and Investments Commission kicked in because doing so “would simply leave the market to others who did not abandon the practice”.
In his final report, Hayne said many borrowers were unaware of the flex commission arrangements.
“Lenders did not publicise them; dealers did not reveal them,” he said.
“The dealer’s interest in securing the highest rate possible is obvious. It was the consumer who bore the cost.”
According to Fox, her dealer “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,” she said.
Maurice Blackburn’s head of class actions, Andrew Watson, alleged some consumers were hit with interest rates more than 10 percentage points higher than the bank’s rack rate.
“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.
The class action covers loans sold between 1 March 2013 and 31 October 2018, when Asic announced that flex commissions would be banned starting the following day.