Even withstanding that loophole, ASIC Mr Saadat said still “consumers shouldn’t be given a loan that that they can’t afford to repay”.
In the BMW Finance case, ASIC alleged that the motor vehicle finance company, which did have an ACL, breached its responsible lending obligations in a variety of ways, including instances where consumers were sold loans through the credit licence loophole. In those cases, BMW dealerships sold car loans to customers, who then passed the paperwork on to BMW Finance for approval.
Car dealers do not need a credit licence to sell loans because after assisting the customer with the paperwork, the dealer sends the loan documentation on to its bank for rubber-stamping. The bank must have an ACL and is bound by responsible lending laws.
Mr Saadat said he expected the investigation would result in a report later this year and enforcement action against lenders who have failed to meet compliance laws.
Australians have borrowed $8 billion to buy new cars in the past 12 months and will pay $513 million in interest this year, or $1.4 million per day, according to price comparison site Finder. The total annual figure borrowed has almost doubled since 2009, according to data released by the Australian Bureau of Statistics.
Consumer Action Law Centre chief executive Gerard Brody said the lending loophole urgently needs to be closed.
“There are significant risks for people in dealing with sales people who aren’t obliged to comply with any legal standards, aren’t trained necessarily, and may mean you end up with a loan that might not be appropriate for your needs,” he said.
Mr Brody’s comments reflect a wider sentiment among regulators and consumer groups that Australian lending laws are letting down car buyers.
The car dealership point-of-sale exception was raised as a source of confusion for car buyers who may not understand that their car dealer has different legal requirements to a loan broker or bank by Commissioner Kenneth Hayne in the royal commission’s interim report last year.
Macquarie Group, Toyota Financial Services and Latitude Finance were all scrutinised during the banking royal commission for their car loan practices.
Macquarie, which facilitates loans to consumers through car dealerships, has not made any changes to its lending practices to pre-empt final recommendations from the banking royal commission.
Car dealers had been bulking up their pay via so called “flex commissions” that allowed them to increase interest rates in order to get a higher commission, until the practice was banned by ASIC in November 2018.
“It has been a real focus for us … we’ve requested a significant amount of information from car finance companies,” Mr Saadat said.
ANZ was ordered to pay $20 million in February 2018 after a Federal Court judge ruled that its former car financing business, Esanda, breached responsible lending laws 24 times between 2013 and 2015.
Despite the tightening of lending laws for car buyers last year, consumers are still vulnerable when they apply for loans at car dealerships, according to Mr Brody.
“That point-of-sale exception needs to be abolished. That would mean that those dealing with consumers in the car yard in finance would have to abide by regulatory standards,” he said.