Volkswagen fined for emissions cheating, sued over car loans

Volkswagen must pay a record penalty for the emissions cheating scandal, as it was also sued over car loan breaches.

VW is accused of breaching responsible lending laws. Picture: Bloomberg

Volkswagen has been ordered to pay a record $125 million in penalties in Australia over the car maker’s diesel emissions scandal, as it was also sued for allegedly breaching responsible lending laws.

The $125m in penalties for making false representations about compliance with Australian diesel emissions standards was the highest total penalty order ever made by the Federal Court for contraventions of Australian Consumer Law, according to the Australian Competition and Consumer Commission.

An earlier $75m fine negotiated between Volkswagen the ACCC was in October rejected by a Federal Court judge, who called the deal “outrageous”.

Volkswagen has been hit worldwide by fines and legal action after the 2015 discovery it had fitted cars with “defeat devices” - software that could detect test conditions and cut its emissions accordingly to improve results.

The German company had kept the software secret since 2006.

“Volkswagen admitted that, when it sought approval to supply and import more than 57,000 vehicles into Australia between 2011 and 2015, it did not disclose to the Australian government the existence of ‘two mode’ software,” the ACCC said.

“Volkswagen admitted that when switched to ‘mode 1’ for the purposes of emissions testing, the software caused its vehicles to produce lower nitrogen oxide (NOx) emissions, but that when driven in on road conditions, the vehicles switched to ‘Mode 2’ and produced higher NOx emissions.”

“Volkswagen’s conduct was blatant and deliberate,” ACCC Chair Rod Sims said.

“This penalty reflects a trend of ever higher penalties for breaches of Australian consumer law,” Mr Sims added.

Volkswagen in September said it had agreed to settle several class action lawsuits in Australia relating to emissions cheating.

Volkswagen also admitted that it made false representations when applying for the vehicles to be published on the Australian government’s Green Vehicle Guide website.

Volkswagen said it was considering whether to appeal the court’s decision.

“Volkswagen AG firmly believes that the penalty of $75 million agreed in principle with the ACCC to resolve the regulatory proceedings was a fair amount and is carefully reviewing the court’s reasons for deviating from that amount,” a spokesperson said.

Federal court justice Lindsay Foster in October said the initial $75 million fine and $4 million in court costs negotiated between Volkswagen and the ACCC was “outrageous” and should be “multiples of that amount” considering the scale of wrongdoing.

Media reported at the time that Justice Foster described the deal as “not a lot of money for Volkswagen”, while he also appeared to criticise the ACCC for not pushing hard enough.

Loan breaches alleged

In a separate action announced on Friday, Australia’s corporate regulator has launched a lawsuit against the finance lending arm of Volkswagen Australia for alleged breaches of credit lending laws on almost 50,000 loan contracts.

In a Federal Court suit, the Australian Securities and Investments Commission alleges Volkswagen Financial Services contravened responsible lending provisions on 49,380 contracts between December 20, 2013 and December 15, 2016.

ASIC said Volkswagen failed to meet the requirements of the National Credit Act, by not making reasonable steps to inquire and verify borrowers’ living expenses, nor making appropriate assessments of whether the borrowers were eligible for the loans.

The maximum civil penalty for one contravention equates to $1.7m in the period up to July 31, 2015, and $1.8m thereafter.

“The responsible lending obligations in the National Credit Act are intended to prevent consumers entering unsuitable credit contracts” ASIC Commissioner Sean Hughes said.

“It is entirely the responsibility of credit providers to properly assess whether the consumer has the capacity to service the loan without incurring substantial hardship.”

Volkswagen Financial Services operates nationally, providing loan contracts for new and used cars.

ASIC alleged that during the relevant period, accredited Volkswagen loan providers claimed “$0” under the living expenses section of loan contracts. Two hundred and thirty-three contracts submitted to the court had a value of “$0” recorded in all applicable living expense fields.

All 49,380 loan contracts submitted to the court by ASIC had incomplete proof of living expenses.

ASIC also alleged the company failed to review credit contracts or make reasonable steps within the 90-day period following to verify if borrowers were suitable for the loan.

Volkswagen Financial Services Australia said it “takes its compliance obligations seriously” and will cooperate with ASIC on the matters arising from 2013 to 2016.