Shoddy lending headache hangs over Macquarie’s Esanda purchase

Macquarie Group has received an unwelcome early headache for its soon-to-be-acquired Esanda business.

Macquarie Group has received an unwelcome early headache for its soon-to-be-acquired Esanda business after the corporate regulator revealed the car finance provider would compensate more than 70 borrowers for shoddy lending uncovered in an ongoing investigation.

After Macquarie this month unveiled the $8.2 billion purchase of Esanda from ANZ, the Australian Securities and Investments Commission today provided an update on an ongoing investigation involving Get Approved Finance, a Western Australian car finance arranger.

The majority of ANZ’s sale of Esanda to Macquarie is expected to complete by October 31, with the remaining wholesale portfolio to close in phases by March 31.

Between 2011 and last year, ASIC found more than 15 of Get Approved Finance’s brokers engaged in “unfair conduct” by having Esanda approve loans for consumers with poor credit histories, even though they did not meet its lending criteria.

ASIC said its investigation into the conduct of Get Approved Finance and Esanda was ongoing.

“Get Approved Finance was able to earn commissions from both Esanda and the providers of the add-on products that would have been lost if Esanda had rejected the applications for credit,” ASIC said.

“ASIC was concerned that Esanda did not have systems in place to manage the risks created by these commission payments or to effectively identify the serious misconduct by the Get Approved Finance brokers, given that it continued for over two years.”

The brokers, two of whom have been permanently banned from the industry, deceptively arranged for a friend or relative to become the nominated borrower, rather than the consumer who was not eligible for credit, by stating they were a guarantor, not the borrower.

The brokers also sold add-on products, such as insurance, on behalf of various providers to some borrowers without their knowledge or consent, in one case increasing the debt from around $24,000 to more than $39,000.

More than $1.38 million in loans were wrongly financed, some being larger than $50,000.

“This case shows that some brokers will be tempted to take extreme steps to ensure that a loan is approved, to ensure they can earn commissions from the lender and from the sale of add-on products,” said ASIC deputy chairman Peter Kell.

“Lenders must have effective systems in place to address this type or misconduct by brokers, or else they will run a substantial risk of having to compensate consumers when it occurs.”