In December 2019, the Australian Securities and Investments Commission (ASIC) commenced proceedings in the Federal Court of Australia against Volkswagen Financial Services Australia Pty Ltd (Volkswagen) for alleged breaches of the NCCP in relation to responsible lending laws.
The automotive finance and insurance solutions subsidiary of the major car manufacturer, Volkswagen, provides borrowers in Australia with consumer loans to purchase new and used cars.
However, the financial services regulator had alleged that – between 20 December 2013 and 15 December 2016 – the car financier contravened the responsible lending provisions of the National Consumer Credit Protection Act 2009 (Cth) (National Credit Act) in relation to 49,380 loan contracts.
The allegations largely centred around failures to undertake “reasonable steps” to inquire about or verify a borrower’s living expenses.
ASIC has now settled its claim against Volkswagen Financial Services Australia Pty Ltd (VWFSA) and discontinued its Federal Court proceeding against the company after accepting a Court Enforceable Undertaking (CEU) from the company.
The CEU outlines that VWFSA will implement a consumer remediation program which will provide an estimated $4.7 million in redress to approximately 1,800 consumers.
This will include around $4.1 million in remediation payments, as well as $600,000 in interest rate reductions on current contracts.
The company has said it will also take “reasonable steps” to remove default listings from credit bureau files.
VWFSA has said it will proactively contact the consumers who are eligible for the program, largely consumers who entered into a consumer loan with VWFSA between 1 July 2012 and 30 April 2017.
VWFSA’s CEU also acknowledges ASIC’s concerns in respect of VWFSA’s lending practices over the period 1 July 2012 to 30 April 2017.
ASIC has now discontinued its civil penalty proceeding in the Federal Court of Australia against VWFSA with each party bearing its own costs.
Responsible lending and expenses in focus
ASIC’s decision to settle and accept a CEU comes after increasing scrutiny on expenses and their role in lending.
Last month, Commonwealth Treasurer Josh Frydenberg announced the government would move to simplify the credit process, by scrapping responsible lending obligations from the National Consumer Credit Protection Act 2009 (NCCP), with the exception of small amount credit contracts (SACCs) and consumer leases.
The proposed reforms – which would take effect from 1 March 2021 if passed – would involve a shift from a “lender beware” model to a “borrower responsibility” model, allowing lenders to rely on the information provided by borrowers.
These changes, in effect, remove the ASIC’s responsible lending remit, with the regulator no longer authorised to exercise its enforcement powers.
The changes were announced after growing confusion of the reach of expense check verification – with the governor of the Reserve Bank of Australia (RBA) Philip Lowe criticising recent interpretations of responsible lending obligations.
Mr Lowe stated that banks should not bear total responsibility for a borrower’s failure to repay their loan, adding that the legislation may need to be amended to provide the industry with further clarity, in light of compliance disputes brought to the fore by the “wagyu and shiraz” case between ASIC and Westpac (estimated to have cost taxpayers at least $1.83 million), which came to nought after being dismissed by the Federal Court.
[Related: Mortgage lenders welcome credit changes]
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.