Wheels Australia - June 2018

22 whichcar.com.au/wheels

THE APPROVAL of unaffordable

and overpriced car loans

is endemic to the practises

surrounding loans that originate

from car dealerships, according

to the Royal Commission into

the Misconduct in the Banking,

Superannuation and Financial

Services Industry.

The concept of ‘flex

commissions’ is at the root of

the most unscrupulous practice

highlighted during the inquiry.

Under a flex commission

arrangement, dealers can set

car-loan interest rates above

the lender’s base rate. The higher

the interest rate accepted by

the consumer, the larger the

commission earned by the

car dealer.

The Royal Commission shed

light on the practice, which was

formally banned last September by

corporate regulator, the Australian

Securities and Investments

Commission (ASIC). Yet consumers

remain exposed, with Westpac

signalling its intention to continue

with this commission arrangement

until the ban comes into effect in

November this year.

ANZ, meanwhile, has suspended

its $2.5b car financing business,

having sold its $8.2bn Esanda

Dealer Finance portfolio back in

October 2015.

An internal analysis by St

George Bank in 2015 into the car

loan commission structure found

that “There are weaknesses in the

design of remuneration structures

and monitoring of sales practices

for dealerships who are originating

retail auto finance loans ... current

practises significantly increase the

risk of unfair consumer outcomes

where dealer behaviour may

be influenced by commission

plan design and the ability of a

customer to negotiate.”

The Royal Commission has also

heard from consumers whose

‘unaffordable’ car loans should

never have been approved. Loan

approvals based on unverified or

falsified income details – including

details swapped with those of

guarantors – and with living

expenses recorded as zero or not

verified were shockingly common.

Car dealerships can operate

in three distinct roles under

the National Consumer Credit

Protection Act 2009 (Cth), the

most common of which, under

an exemption from the credit

licencing regime as a ‘supplier

of goods or services’, places the

obligation to ensure compliance

on the Australian Credit Licence

holder (the lender) rather than

the car dealer.

Finance, as well as the sales of

insurance, (and accessories, spare

parts and servicing) contributes

significantly to dealers’ overall

profitability. Dealerships are likely

to consider their margin on a car

purchase on a whole transaction

basis, and are often prepared to

discount the car while making

their profit elsewhere.

JAMES WHITBOURN

Having a lend

The car fi nance deals too crooked to be true

JUNE 2018

Red

Allow us a quick mea culpa for two errors

that made it into last month’s Wheels. The

first concerns the safety rating we applied to

the Suzuki Swift GLX in the specs panel on

p97, which claims it has a four-star ANCAP

rating. Fact is all Swift models have five-star

ratings, which was a contributing factor in

the Suzuki’s strong performance at COTY

2018. The second mistake regards our claim
      on p14 that the new BMW M2 Competition is
      offered only as a dual-clutch. Incorrect: a
      six-speed manual is available. Our apologies.

Two wrong turns