Car dealers ‘tinkered’ with interest rates, lawsuit alleges
A lawsuit targeting car dealers who altered interest rates charged to customers purchasing vehicles to maximise profit has begun in Victoria’s Supreme Court.
A Victorian car dealership “tinkered” with interest rates to maximise its profit from a sale, the Supreme Court heard, during the opening of a class action trial targeting flex commission payments.
It is alleged that key terms of a loan agreement given to then 25-year-old Allanah Fox in 2015 for a Hyundai iX35 were not made clear, including that it would take seven years to pay off her $47,000 car with an annual interest rate of 12.99 per cent.
That amounted to an additional cost of $24,864 in interest repayments. Ms Fox is one of two lead plaintiffs in the lawsuit, the other being Bridget Nastasi, who was 20 years old at the time she bought a Nissan Qashqai in circumstances similar to Ms Fox.
The court heard the Lakeside Hyundai business manager was “tinkering” with the interest rates it planned to charge to ensure the loan repayments were set according to Ms Fox’s budget of about $200 per week, but Ms Fox was not aware the rates could change.
The claims were made on the opening day of a class action launched by Maurice Blackburn against big four bank Westpac and its subsidiary St George, concerning “flex commission” arrangements with car dealers.
These arrangements allowed car dealers at the point of sale to set the interest rates offered to consumers on Westpac car loans. The higher the interest rate, the higher the commission paid by the lender to the dealer, according to court documents.
The class action covers loan agreements to purchase a car issued under Westpac or St George’s credit licence, facilitated by a Westpac accredited car dealer between March 1, 2013 and October 31, 2018.
ASIC banned flex commission payments in 2018, and the practice was criticised in the Banking royal commission report handed down in the same year.
On Monday, the court heard that in Ms Fox’s case and hundreds of others, “it is (at the) discretion of the business finance manager in the car yard … to manipulate figures as high as possible, to get the highest flex commission”.
When Ms Fox bought the car, she was a teacher’s assistant and worked with children with disabilities.
The court heard she was pleased with the initial negotiations, as she bargained the price of the car down to $38,000 when it was advertised at about $40,000.
Ms Fox signed some initial contracts, which included placing a signature below a bolded reference to a “legally binding” agreement, and she believed it could not be reneged.
The court was also shown an internal log of notes on Ms Fox, including one which said she: “Has recently inherited a house so has moved out of rental property and will move into the house once it’s fixed up. Meaning she will no longer have (a) rental commitment.”
But the court heard she did not sign the final finance documents until the day she picked up the car, in which she felt “rushed” and “didn’t have time to read them”, the court heard.
It was only then she discovered the loan term was seven years, to which she told the business manager: “I didn’t know it was going to be for such a long time.”
As well, the court heard she wanted to withdraw from her initial acceptance of an extra package, but was “told that would be difficult” and “I would strongly suggest you stick with it and keep the package”.
Ultimately, the entire loan term was for 84 months and worth a total amount of $72,734.
The court heard Ms Fox did not understand the terms of the loan were negotiable, and she was not given time to read documents.
“If it had been disclosed that Lakeside (was) making a commission I would have been shocked and felt that was wrong,” Ms Fox’s affidavit, read out in court, claimed.
“I would have felt there were too many hands making money off the sale of my car.”
The court also heard she did not understand Lakeside to be a financial institution.
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