Why Is ASIC Investigating The Motor Finance Industry?

Table of Contents

Share at:

The Australian Securities and Investments Commission (ASIC) is currently investigating the motor vehicle finance industry. The investigation began in mid 2018, focusing on a loophole that permits dealerships to provide loans without a credit license. This was the result of legal action ASIC took against BMW Australia Finance in 2016. The action relates to the sale of car loans by BMW to customers who would experience hardship as a result of loans that were not appropriate. BMW were forced to pay $77 million in compensation as a result of it’s compliance failures. ASIC found that the company were providing loans to customers who simply couldn’t afford them, and therefore they were not meeting their responsible lending obligations.

Loophole

ASIC’s findings in the BMW case identifies a loophole in finance regulations that allows dealerships to provide loans without holding an Australian credit license. This is known as the ‘point of sale’ exception and was a concern raised in the interim report of the Hayne royal commission. The report also points out that almost 40% of car finance sales are through the dealership directly.

The main fear of this loophole is that sales people who aren’t qualified to provide credit and don’t have legal obligations to follow, are providing loans to consumers. As a result it is no surprise that many are ending up with loans that don’t align to their circumstances. There is also the worry that car buyers are unaware dealerships don’t have the same obligations as traditional lenders. The commission plans to have their investigation complete with a report later in the year. This may result in potential action against lenders who continue to disregard their legal obligations.

Flex Commissions

Another practise within the motor financing industry that ASIC scrutinised as part of their investigation was ‘flex commissions’. This is where lenders pay a commission to car dealers for bringing in consumers. The car dealers get to decide the interest rate the customer will pay on their car loan. The issue with this is that the dealer’s commission correlates to the size of the interest. Therefore ASIC found the dealerships charge excessively high interest rates to the customer into order to gain a greater commission. ASIC were successful in officially banning this practice, with the law applying from November 1 last year.

Despite this display of regulatory control, car buyers still remain vulnerable when opting for financing from a dealership. Currently the point of sale loophole still allows for regulation to be by passed. Therefore ASIC will be seeking to abolish it as it concludes it’s investigation. If you find yourself negotiating a loan agreement with a car dealership and are unsure about it’s terms, the advice of a finance lawyer may be helpful.

Have more questions? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.

Share at:

Simplify creating legal documents today

Browse through Lawpath's AI tools which can be used to draft, review and refine legal documents today!

Related Articles

Legal and Accounting Topics covered in Advice Plans

As the financial year wraps up, it’s the perfect opportunity to step out of the day-to-day grind and set your business up for future success.

Your Guide to Launching an App (2026 Update)

Have you ever thought about launching an App? Find out the legal, marketing and development processes you need to follow here.

Key Differences Between a Deed and a Contract

Deeds and contracts are both legally binding documents, but they are not the same. Find out how they're different in this article.

JP & Notary Public: What’s the Difference? (2026 Update)

A Justice of the Peace (JP) and Notary Public perform similar roles, but they're different in terms of what they can witness. Read more here.

Is a Verbal Agreement Binding and Can It Hold Up in Court?

Does a verbal agreement have the same legal force as a written agreement? Get the answers you've been searching for in our guide.

How To Write an Expression of Interest When Filing Tender

New businesses may feel intimidated by the tender process. In this article, you will learn what an expression of interest for tenders is and how to write one.