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Good evening.
I would like to start by acknowledging the Traditional Owners of the land on which we meet, the Whadjuk Noongar people, and pay my respects to their Elders, past and present. I extend that respect to Aboriginal and Torres Strait Islander peoples here today.
It’s a real pleasure to be here in the presence of so many advocates and consumer law practitioners to discuss lemon cars and used car financing – because misconduct relating to used car financing to vulnerable consumers is one of ASIC’s 2024 enforcement priorities.
I’d like to briefly talk about the law as it stands and how we are enforcing it, but before that, I would like to share a brief story to illustrate why this such a focus for us.
Meet Mandy. That’s not her real name but she is a real person.
Mandy is a single parent with three kids. Life is pretty busy, as you can imagine.
Five years ago, Mandy needed a new car.
She went to a used car dealership that she saw advertised on Facebook, which made her believe she could finance a car with her Centrelink payments.
Other than her Centrelink and bank statements, she was asked for no information about her financial circumstances.
On the drive home, the car broke down. With the added costs of repairs, she eventually fell behind on her car repayments. It got to a point where she couldn’t buy food for her family or pay her power bills.
It can be frustrating for anybody to buy a vehicle that breaks down – but for somebody in Mandy’s circumstances, the impact can be so much worse.
As a range of consumer groups like ICAN and Consumer Action have pointed out through their work, Mandy’s story is the story of far too many consumers who are being sold poor quality vehicles on dodgy credit arrangements – who end up with no car, no way to get around, and ongoing debts.
The process of getting loan approval for these cars is often frictionless by design, dissuading customers from shopping around for a better deal, or looking too closely under the hood.
At ASIC, we hear a lot about misconduct in the motor vehicle financing space – through our conversations with consumer advocates and through the reports of misconduct made to us.
And while this is, as I said, a 2024 enforcement priority, this is not a new area for ASIC. In the past decade we have secured tens of millions of dollars in remediation for hundreds of thousands of customers, including through enforcement action against BMW Australia Finance and Volkswagen Financial Services Australia Pty Ltd (20-239MR), to name a few.
But we acknowledge there can be many roadblocks to recourse for customers.
For example, research by the Consumer Action Law Centre, Consumer Policy Research Centre and Victorian Aboriginal Legal Service found that in Victoria, consumers who have bought a lemon car can be required to take more than 60 steps to resolve the situation.
In one case, it cost Consumer Action $33,000 to enforce their client’s legal rights for a car that cost half that amount.
These issues can be magnified in remote and regional communities, where cars really are essential and people face significant barriers to access to justice when something goes wrong.
We are particularly concerned to hear about First Nations peoples in regional and remote communities being targeted to purchase lemon cars on finance at over-inflated prices.
It’s one thing to be taken for a ride – but another to be stuck with a bill you can’t afford through finance that possibly shouldn’t have been provided in the first place.
The law
Fortunately, there are actions available to us under the law to address this kind of conduct.
First, it’s worth noting the law around the sale of lemon cars is complex. It involves a mix of state and federal laws that capture different aspects of the conduct.
This is why general consumer protection regulators like Consumer Protection WA and its counterparts in other jurisdictions have taken such an interest in this issue over many years.
ASIC’s role of course relates to the provision of credit to support the purchase of vehicles. There are a number of provisions under current financial services and consumer credit laws that ASIC can and does use to address these harms.
Altogether, they provide a large net to catch a wide range of misconduct.
I’d like to touch on three areas of law being used by ASIC to address misconduct and prevent consumer harm. I appreciate that this is old hat for some of you but for others, I hope it gives you a sense of our current toolkit.
National Consumer Credit Protection Act (National Credit Act)
The National Consumer Credit Protection Act (or Credit Act) is the key piece of legislation we can draw upon – and it provides two key bases for action.
Unlicensed credit activities
The first relates to unlicensed credit activities.
Section 29 of the Credit Act requires anyone engaging in credit activities in relation to consumers to be licensed.
This has been the law since 2010 and ASIC has a strong record of enforcing it.
For example, we have an ongoing case against Green County and Max Funding[1], where we allege the lenders tried to bypass consumer protections in the Credit Act by requiring prospective borrowers to sign a business purpose declaration although the credit was for personal use. Neither Green County nor Max Funding were licensed to provide personal loans or act as an intermediary.
We also have civil penalty proceedings afoot against Cigno Australia and BSF, including against two of their directors personally, for their ‘No Upfront Charge Loan Model’.[2] Under this model, Cigno and BSF provided short-term credit to more than 100,000 customers without either entity holding a credit licence. Some of these customers were charged fees of more than 600% of their total loan amount – well beyond the caps imposed by the Credit Act.
While these cases are not related to used car financing, they demonstrate the legislative levers we can use to address misconduct under this provision.
Responsible lending obligations
The other key basis for action is the responsible lending obligations in Chapter 3 of the Credit Act.
As set out in Regulatory Guide 209, responsible lending obligations require lenders to, among other things:
make reasonable inquiries about a consumer’s financial situation, and their requirements and objectives
take reasonable steps to verify a consumer’s financial situation
make a preliminary assessment about whether the credit contract is ‘not unsuitable’ for the consumer.
We have a case going through the courts right now against car finance provider Money3 for alleged breaches of its responsible lending obligations when providing used car finance (23-126MR).
While there are some limits on what I can say about that matter while it is before the court, it is on the public record that we allege that over nearly two years, Money3 failed to properly assess whether certain borrowers – including First Nations peoples – could meet their repayment obligations before entering into loan contracts for the purchase of second-hand vehicles.
Each of these consumers were either receiving Centrelink payments as their sole source of income or were on a low income. In some cases, the vehicle broke down, leaving the customer with an unusable car and a loan that they couldn’t afford.
This matter was referred to us by consumer advocates and their clients assisted in our investigation.
I think that many people in the room are eagerly awaiting the outcome in this matter, as Money3 has been a source of concern for consumer advocates for some time.
Design and distribution obligations
Finally, we have a relatively new tool that could be used to address car finance misconduct in the Design and Distribution Obligations (DDO).
These obligations, which came into force in October 2021, require firms to design financial products to meet the needs of consumers and to distribute their products in a more targeted manner.
We haven’t run a car finance case yet using these new obligations, but it isn’t a stretch to imagine how they could be used in relation to the kind of misconduct we often see in that area.
We recently made our first final DDO stop order against Coral Coast Distributors, meaning it can no longer sign up customers into Centrepay credit arrangements in its Urban Rampage stores (23-141MR).
We found that Coral Coast targeted First Nations consumers who received Centrelink payments – but after signing up, many consumers found themselves without money to pay for essentials.
We think it’s unacceptable for businesses to use credit-like facilities in a way that places their customers into hardship.
ASIC remains strongly committed to addressing poor product design that puts consumers at risk or causes them harm. This includes in the used car finance space.
ASIC’s enforcement approach
So that’s a snapshot of some of the legal levers we can pull to address misconduct in relation to used car financing – but before closing I’d like to place those in the broader context of our approach to enforcement.
Across the board, ASIC receives around 10,000 complaints a year. There’s no shortage of matters coming to us, and we can’t take them all on. That of course means we have to make careful choices on the matters we select for investigation and enforcement – to focus our resources on the areas of greatest consumer harm and where there’s the greatest opportunity to send a strong message of deterrence.
To help us do this, we set enforcement priorities.
These priorities are announced annually – in part to be transparent about where we are dedicating our time and resources, but also because signalling clear priorities is in itself a regulatory intervention.
There’s a lot that goes into determining our priorities, and that includes giving weight to the views of our stakeholders – including members of ASIC’s Consumer Consultative Panel.
As you can see, the 2024 enforcement priorities include a focus on used car financing misconduct, predatory lending, and high-cost credit.
Our selection of these as enforcement priorities demonstrates just how seriously we take the representations of consumer advocates working in this space.
Our ongoing work in this area spans the full spectrum of misconduct – from unlicensed, fringe operators to unscrupulous debt collectors.
Taking on these operators is not something we do alone – we also work closely in a number of forums with the ACCC, state and territory-based fair-trading regulators like Consumer Protection WA, and consumer advocates to identify and disrupt misconduct in this area.
This coordination will also be key to navigating the tangle of regulation and legislation around defective used cars, and the financing of them.
Conclusion
If I can leave you with one message today, it‘s that ASIC has a broad enforcement toolkit and we’re not afraid to use it where we see evidence of consumer harm as a result of poor lending practices – including in relation to used car financing.
And it’s great to know that we’re not going it alone. I’ve been involved in discussions about lemon cars and associated financing for the best part of the last decade and never before have I seen such a strong commitment across state and federal regulators and consumer organisations to working together to address misconduct.
Thank you to the Australian Consumer Law Committee for inviting me to make a few opening comments – I now look forward to continuing the conversation in the panel discussion.
Thank you.
