According to stratton.com.au, which is majority owned by ASX-listed company carsales.com Ltd, industry operators are under no legal obligation to disclose items such as interest rates and the true cost of vehicles in novated leasing products, which means they can be “utterly deceiving” as there is “a complete lack of transparency”.
The asset finance brokerage said that because the end user of a novated lease is a consumer, and not a company, “the end user should dictate protections and receive full disclosure and transparency like that [in] a consumer loan”.
As such, the brokerage is now offering full disclosure of all components such as vehicle price and interest rates within its novated leasing products “to ensure customers receive the same level of disclosure as they would be entitled to under the National Consumer Credit Protection Act”.
Rob Chaloner, founder and CEO at stratton, explained: “Current practice [in the industry] uses complex quotes that are difficult to understand, contracts that do not offer full disclosure of vehicle prices or interest rates and, all too often, poor customer service that sometimes doesn’t communicate how much customers are actually borrowing.”
He added that the company will be passing on 100 per cent of the vehicle discounts from the packaging provider and will charge a “fully transparent service fee of 1 per cent of the vehicle price”. Therefore, a $40,000 car will ensure a $400 fee.
“We’re operating independently of industry practice and behaving as though the industry is regulated – because this product should be totally transparent to consumers,” Mr Chaloner said.
Speaking to Mortgage Business, the CEO added: “If you're trying to build a business online, you need total transparency. Whoever wins transparency online, wins overall. People have more choice than ever, everything is at a click of a mouse … [so] for anyone to believe and trust what you do, you have to be completely transparent with what you do. I believe we will see significant growth in the business because the consumer wants that.”
He added: “Our quotes will fully disclose the purchase price of the vehicle leased, the total financed amount and the interest rate.”
According to Mr Chaloner, consumers using novated leases often don't know how much they have borrowed, and that, in the end, the novated packaging provider is the one who sees the true benefit, not the driver.
He told Mortgage Business: “[Employers] are trying to provide a benefit to [their] employee, if half that benefit gets sucked up in someone else's margin it makes you feel pretty jaundice to that whole idea."
“Regardless of the fact the sector is unregulated, we don’t want to see major companies continuing to take advantage of consumers and pocket the cost and tax savings that should be passed on to them,” he added.
“We want to make leasing fair to consumers, who are the end users,” he added.
[Related: Lending change to ‘fuel surge in SME owners’]
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Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.