A class action has been filed against the major bank for commissions it paid to car dealers alleged to hit consumers with higher interest rates on loans.
Maurice Blackburn filed the action in the Supreme Court of Victoria against Westpac Banking Corporation and St George on Wednesday, for commissions granted from 1 March 2013 and 31 October 2018.
The class action has alleged that the bank gave out “flex commissions”, a common form of commission in the car finance industry paid to car dealers, incentivising them to set the loan interest rate at a higher rate of interest than they otherwise would have been.
The practice was banned by ASIC in November 2018.
Westpac confirmed it was served with the class action on Friday morning, saying it would be defending the claim.
Maurice Blackburn has sought to recover damages of an unspecified amount.
Under a flex commission arrangement, banks fixed a base rate of interest that could be charged under a car loan agreement and the motor dealer or finance intermediary who sold the loan was able to determine or recommend the interest rate for the loan.
The commission payable to the motor dealer or finance broker intermediary was set by the “flex amount”, the difference between the base rate and the contract rate. The bank also benefitted from the commission, because the flex amount would in practice, be shared between it and the intermediary.
The discretion to increase the interest rate from a base rate was not determined by an objective criteria, such as the credit risk of the consumer, the law firm said.
It made an example of a car dealer being able to set the rate at 6.5 per cent for one consumer and 15.15 per cent per annum for another, even if they bought the same model of vehicle for similar value.
As found by the royal commission, flex commission arrangements were not disclosed to the consumer.
The final report of the Hayne commission stated: “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.”
Further the car dealers are the representatives of the banks and finance companies in relation to the loans, Maurice Blackburn stated, with the financial institutions being held responsible for their actions.
The law firm has invited individuals to register their interest if they had a car loan between 1 March 2013 and 31 October 2018 issued under Westpac or St George’s credit license (including Bank of Melbourne) that was organised by a car dealer.
Maurice Blackburn stated it is still investigation “flex commissions” paid to car dealers by other banks and lenders: ANZ (for loans given 1 March 2013 to 31 October 2018), Macquarie Bank (1 March 2013 to 31 October 2018) and Esanda (March 2013 to 31 October).
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].