ob体育 has commenced proceedings in the Federal Court of Australia against Volkswagen Financial Services Australia Pty Limited (Volkswagen).
Volkswagen operates nationally to provide borrowers with consumer loans to purchase new and used cars.
ob体育 alleges between 20 December 2013 and 15 December 2016, Volkswagen contravened the responsible lending provisions of the National Consumer Credit Protection Act 2009 (Cth) (National Credit Act) in relation to 49,380 loan contracts by:
- not making reasonable inquiries about borrowers鈥� living聽expenses in contravention of ss 128(d) and 130(1)(b) of the National聽Credit Act in relation to a subset of the loans;
- not taking reasonable steps to聽verify borrowers鈥� living expenses in contravention of ss 128(d) and聽130(1)(c) of the National Credit Act in relation to each of the loans; and
- not making an assessment in accordance with s 129 of the National Credit Act in relation to whether each of the loan contracts聽was unsuitable for the relevant consumer, in contravention of s128(c) of聽the National Credit Act.
ob体育 is asking the Court to find that Volkswagen contravened the National Credit Act provisions in respect of each of the loans and to impose a civil penalty on it for doing so. The maximum penalty for one contravention of the relevant provisions during the period of the contraventions was 10,000 penalty units which equates to $1.7 million in the period to 31 July 2015 and $1.8 million thereafter.
The National Credit Act provides consumer protections to ensure that credit providers make reasonable inquiries about a borrower鈥檚 financial situation before assessing whether a loan contract will be unsuitable for the borrower.
鈥楾he responsible lending obligations in the National Credit Act are intended to prevent consumers entering unsuitable credit contracts. While ob体育 will continue to enforce the law and target poor practices, it is entirely the responsibility of credit providers聽to properly assess whether the consumer has the capacity to service the loan聽without incurring substantial hardship,鈥� said ob体育 Commissioner Sean Hughes.
ob体育 also alleges that Volkswagen contravened its obligations under s47 of the National Credit Act requiring it to engage in credit activities efficiently, honestly and fairly and to comply the National Credit Act. There is no penalty for a contravention of that provision.
The proceeding will be listed for a first case management hearing on a date to be determined by the Court.
Background
The requirement to undertake a proper assessment of unsuitability under section s128 of the National Credit Act was considered in the matter of ob体育 v Westpac Banking Corporation. In that matter the Honourable Justice Perram decided a lender 鈥榤ay do what it wants to in the assessment process鈥� and so does not have to use a borrower鈥檚 actual verified expenses in undertaking the assessment (19-210MR).
ob体育 appealed that decision to the Full Court of the Federal Court (19-246MR) because it considers the decision:
- is inconsistent with the legislative intention of the responsible lending provisions;
- creates uncertainty as to what is required for a lender to comply with its assessment obligations; and
- may result in an erosion of improvements in responsible lending standards over recent years to the point that lenders are applying bare minimum standards.
ob体育鈥檚 decision to bring this action against Volkswagen for contraventions which include the failure to make assessments in accordance with s 129 of the National Credit Act in relation to whether each loan contract was unsuitable, is consistent with ob体育鈥檚 position on responsible lending which has been articulated in regulatory guidance since 2010.
On 9 December 2019, ob体育 published an updated version of its responsible lending regulatory guidance 鈥� Regulatory Guide 209: Credit licensing: Responsible lending conduct (RG 209).
The updated RG209 follows a consultation paper released by ob体育 in February 2019. ob体育 received 72 submissions, with 64 non-confidential submissions published on the ob体育 website in response.
As part of our consultation, ob体育 also conducted public hearings. In these hearings, ob体育 heard from industry representatives, consumer groups, academics and service providers.
Car Finance Industry Review
Further to ob体育鈥檚 work on BMW Australia Finance (16-417MR) and its ban on flex commissions (18-329MR) ob体育 is currently undertaking a review into the car finance industry鈥檚 compliance with responsible lending, debt collection and hardship obligations. ob体育 intends to publish a report in early 2020 and will assess whether further regulatory action is required.聽
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Editor's note:
The first case management hearing has been listed for Thursday 6 February 2020.
Editor's note 2:
Consent orders were entered on 5 February 2020 regarding the timetable for the filing of pleadings.聽 The matter is scheduled for a further case management conference on 2 April 2020.