Westpac faces probable allegations over vehicle credits that permitted vendors to inflate interest rates.

Westpac is facing a potential class action lawsuit as numerous Australians have been cheated with car loans under a since-banned scheme that allowed dealers to set monstrous interest rates.

Shine Lawyers is filing a case in the Federal Court as a slew of customer and shareholder lawsuits arise from the banking royal commission.

Under the “Flex Commission” structure, car dealers and brokers were able to set the interest rate on car loans up until November 2018. This model allowed brokers and dealers to obtain bigger commissions for themselves by augmenting the interest rate above a base rate set by the bank or lender.

“If you bought a car from a dealership using “in-store” finance for personal use from July 2014 to November 2018, you may have been the victim of a flex car loan rort.” stated Vicky Anzoulatos, a Shine Lawyers’ class action practice leader.

Car buyers who took out personal loans from Westpac, or its subsidiaries St George, Bank of Melbourne and Capital Finance, during July 2014- November 2018 through a car dealer, are open for the class action.

At a rival law firm, Maurice Blackburn, is investigating a class action over flex commissions, that involve car buyers who took out loans through Esanda, ANZ and Macquarie Bank.

Ms Antzoulatos stated Shine is currently focusing its case on Westpac, as it has the largest market share.

Borrowers were unaware of commission arrangements

Shine Lawyers are alleging Westpac and its dependencies for breaching their legal compulsion to act fairly and honestly when providing loans.

“Dealerships spruiked cars with finance while failing to disclose the interest rate on the loans was arranged with the lender in exchange for commissions. The bank and its subsidiaries failed to disclose to consumers the true nature of their commission structure with the car dealers, and we will allege this was illegal.” Ms Antzoulatos said.

Commissioner Kenneth Hayne gave a trenchant assessment of flex commissions and their opacity in the final report.

“Many borrowers knew nothing of these arrangements. Lenders did not publicise them; dealers did not reveal them”, Mr Hayne wrote.

The dealer’s interest in securing the highest rate possible is obvious. It was the consumer who bore the cost.”

Ms Antzoulatos explained how to flex commissions lead to “rip-off loans”, resulting in a percentage of customers spending thousands of dollars unnecessarily.

“In some cases, customers who bought the same car or a vehicle of similar value on the same day were charged between 6.5 percent and 15.5 percent interest over and above the base rate. The difference in the commission on the sale of these loans was $315 and $10,823 respectively,” she said.

Flex commissions were banned from November 1, 2018, by the Australian Securities and Investments Commission (ASIC) due to concerns about very high-interest rates, especially for vulnerable consumers.

Consumer advocates have criticised the loan structure for placing more insistence on a car buyer’s ability to beat down the dealer than on their creditworthiness or financial situation.

Westpac kept flex commissions with an emerging ban

Fines as high as $420,000 per breach have been imposed on the Industry with a notice period of one year to pay off.

Following the ban, lenders and banks need to determine the interest rate on a particular car loan. A different rate can no longer be suggested by a dealer to earn more commission, but still have a limited capacity to offer discounts.

Westpac most recently has been in the inquiry’s sights over its handling of car loans during the banking royal commission.

Despite introducing a cap on the car rate charged to car dealers and support for the removal of flex commissions, Westpac is still utilizing the flex commission structure, even as ASIC’s boycott lingered just months away.

West pack argued that they alone cannot one-sidedly put a stop to using flex commissions and still contend in the car loans market.

Mr. Hayne’s report describes this as the “ first-mover disadvantage,” in which an intervention by the regulator is imposed to initiate a change, despite industry individuals recognising the need for it.

Furthermore, Brian Hartzer, then chief executive, was questioned about whether such policies of Westpack could have influenced dealers to make unsatisfactorily loans in order to attain a commission, to which Mr Hartzer replied “I couldn’t say. I am not a car dealer.”

“The evidence that Westpac representatives gave at the royal commission demonstrates that Westpac knew that these types of loans would lead to poor outcomes, and we think with that knowledge their conduct was peculiarly egregious.” Ms Antzoulatos said.

Originally published by Stephanie Chaimers on News.