Action over ‘shonky’ car loans kicks off against Westpac, Macquarie

At 25-years-old, and working as a teachers’ aide for students with a disability, Alannah Fox visited a Hyundai dealership 10 years ago wanting to buy an ix35. She was looking to upgrade after her old Holden Berlina had clocked up 200,000 kilometres.

Fox thought she managed to secure a good deal, but now says she realises she was being “ripped off” by a dealership that exploited her inexperience, while being aided by banks that had cosy relationships with car dealers allowing them to hike up interest rates on car loans for large commissions.

The ‘flex commission’ arrangement was a feature of the car industry for more than 25 years when it was banned by the corporate regulator in 2018 because it led to consumers paying excessive interest rates on their car loans.Credit: Bloomberg

Fox is the lead plaintiff in a class action against Westpac and its subsidiary St George Finance Limited that began in the Victorian Supreme Court on Monday. Law firm Maurice Blackburn is alleging the bank, as well as Macquarie Leasing, engaged in predatory lending practices that stung consumers with unfair, high-interest loans.

The “flex commission” arrangement was a feature of the industry for more than 25 years when it was banned by the corporate regulator in 2018 because it led to consumers paying excessive interest rates on their car loans.

Flex commissions were paid by lenders to car finance brokers – typically car dealers – allowing the dealer to set the interest rate on the car loan, which were not determined by objective criteria, such as credit risk. The higher the interest rate, the larger the commission earned by the dealer.

The court heard Fox bought an ix35 for $38,000 after managing to negotiate down the price. But soon after, was convinced to purchase thousands of dollars worth of extras that were bundled into a complex web of savings.

Justice John Dixon was told Fox took out a $47,000 loan for 84 months at an interest rate of 12.99 per cent, about five per cent higher than the base rate set by the bank. The Hyundai dealer made a $6000 commission on the loan to Fox.

“I felt very rough throughout my conversation with [the dealer] as the focus is on the signing of the documents,” Fox wrote in her affidavit, which was read out to the court by barrister Jeremy Stoljar.

“I didn’t have time to read them. I did not have any real time to review them. I was not told about or directed to any of the following matters … The car had been modified and prepared according to my request, and was waiting for me in the car yard to drive away. I was committed to buying the car and had signed the contract for sale … I did not think I had any choice not to proceed with the purchase of the car and enter into the car loan at that point.”

Stoljar said Fox claimed she did not understand that she could negotiate the terms of the car loan.

Earlier this month, ANZ settled the class action brought against it in relation to flex commissions for $85 million without an admission of liability. When Maurice Blackburn launched proceedings in 2020, it described the practice as “shonky” car loans.

A Westpac spokesman said the bank was defending the class action proceedings, but would not make any further comment while the eight-week trial was under way. Macquarie was contacted for comment.

The banks will make their opening statements on Wednesday and Thursday, before members of the class action give evidence from next week. There are 600,000 Macquarie and Westpac customers who have been potentially affected by the “flex commission” arrangements.

The trial continues.

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