Second-hand car dealers, high-interest short-term loans among impending court crackdown

The first in a series of court cases against businesses offering shady high-interest loans, and dodgy second-hand car dealers targeting vulnerable Australians, is about to start.

A series of separate court cases against businesses taking advantage of vulnerable consumers, such as using predatory lending practices, is about to start.

Australian Securities and Investments Commission deputy chair Sarah Court told The Weekend Australian it was likely that about three or four matters would hit the courts before the end of 2024, as the watchdog sought to rein in business models designed to avoid protections of the Credit Act.

Among those scrutinised were those that involved credit cards, used-car sales and small amount contracts and leases.

ASIC this week revealed it was suing a NSW used and new-car dealer Diamond Wheels, trading as Lansvale Motor Group.

Also named in the case is Keo Automotive and its ex-director, Ken Keomanivong. The dealership is located in southwest Sydney, and ASIC has alleged in court filings the company provided unlicensed car loans to customers who paid excessive rates – in some cases about double the amount of interest that could lawfully be charged.

Diamond Wheels, which has been family run since 1995, and Keo Automotive have never held an Australian credit licence.

ASIC deputy chair Sarah Court during the ASIC annual forum at the Sofitel in Melbourne. Aaron Francis / The Australian

Ms Court said that although the Diamond Wheels matter was a suburban Sydney matter, the regulator was also examining dealers in northern Queensland.

“The other area that we’re looking at closely is in northern Queensland. Often First Nations people are the victim of these schemes,” she said.

“What happens there is they need a car because they live out of the city. They go to get a car. They get a finance deal, either through the used-car dealer, or a broker recommended by the used-car seller.

“They get a loan, they drive it out of the showroom and the car breaks down 3km away. They are left with an unusable vehicle and this loan that is very difficult to service. That’s a really important area that we are focusing on.”

The Australian Competition and Consumer Commission on Monday revealed it had relied upon tips from consumers posting on social media about allegedly fake discounting practices at Coles and Woolworths, before launching legal action against the supermarket majors.

For ASIC, much of the information it collects comes from frontline consumer groups which work with the most financially disadvantaged members of the community.

Typically, ASIC aims to protect vulnerable consumers – for example from dodgy lenders – but Ms Court said feedback from frontline workers suggested the cost of living was pushing more people toward short-term loans.

“The predatory lending (is affecting) the most financially disadvantaged in the community. But having said that, some of the anecdotal information from those groups is that they are seeing people being forced to take out short-term loans who would not normally anticipate having to resort to this kind of credit provision,” she said.

And while consumers are living through a particularly tough cost-of-living crisis now, Ms Court said that since she joined the regulator she has observed a broad practice of “predatory lending” that defied economic trends.

“Every time we get a court outcome and the court declares a particular lending model to be unlawful, the next model pops up within weeks. I think this is, unfortunately, an enduring issue for us,” she said.

“Having said that, looking at some of our internal referrals recently … the kind of matters that are coming through the door in relation to credit provision and vulnerable consumers is certainly higher at the moment than any other referrals coming through.”

Ms Court said the watchdog regularly met with representatives of consumer rights groups on the front linessuch as culturally and linguistically diverse groups, Indigenous rights groups, financial rights groups and legal services.

“Certainly anecdotally, they are telling us that the predatory … practices are really escalating at the moment. And people are being increasingly driven to having to access this kind of credit for day-to-day living expenses,” she said.