Australian auto lenders warned to “get their house in order”.

Last week the Australian Securities and Investment Commission (ASIC) accepted an Enforceable Undertaking from car financier, BMW Australia Finance Limited (BMW Finance), which will see BMW Finance implement Australia's largest consumer credit remediation program to compensate customers for its responsible lending failures.

The program which is open to all of its customers under the BMW Financial Services, Mini Financial Services and Alphera Financial Services brands, will provide at least AU$72 million in redress for consumers made up of:

• AU$14.6 million in remediation payments;

• AU$7.6 million in interest rate reductions on current contracts; and

• AU$50 million in loan write offs.

BMW Finance has also agreed to pay a AU$5 million community benefit to contribute to consumer advocacy and financial literary initiatives.

The remediation program will identify at least 15,000 customers, who between January 2011 and August 2016 may have suffered hardship as a result of BMW Finance's compliance failures, and will ensure appropriate remediation. BMW Finance will also remove default listings and buy back all debt sold to third parties to ensure that the written-off loans are not subject to further collections activities.

The program will be overseen by an independent remediation consultant, who will periodically report to ASIC on its progress and BMW Finance's compliance with the program.

ASIC Deputy Chairman, Peter Kell said: “BMW Finance had a sales-driven culture that failed to comply with the requirements of the credit laws and resulted in poor outcomes for many consumers.

“We are encouraged that BMW Finance has recognised these shortcomings and agreed to a remediation program that will see thousands of consumers compensated.

Poor business practice

“This is an example of the staggering cost of poor business practices and should act as a warning to other car financiers to get their houses in order'.”

ASIC has also amended BMW Finance's Australian Credit Licence to extend an external consultant's oversight of BMW Finance until the end of 2017 and introduce 'live review' testing of credit applications.

In addition to the EU, BMW Finance has had conditions placed on its Australian credit licence.

Many Australians are asking is this an industry-wide problem?

Jonathan Brown, a spokesman for the Consumer Action Law Centre, said there is a serious problem with the sales tactics used in auto finance.

“Cars and how we finance them have been a major problem for Consumer Action for the whole history of our centre,” Brown told The New Daily.

“Over the last 10 years, cars and car loans have been a major source of stress for people who just want a safe car for their family or a reliable way to get to work.”

Brown added: “too often salespeople in car yards or at finance companies were receiving ‘ridiculous’ commissions to sell products that are bad value, or not suited to consumer needs.

“One of the big problems is unnecessary add-ons like expensive insurance options that customers neither want nor need,” he said.

“Our Demand a Refund campaign has helped people to seek refunds for dodgy add-on products and has helped people complain about nearly $500,000 in dodgy insurance and warranty products,” Brown said.

“Depending on the product some salespeople make up to 90% commission which is just a gross exploitation of the community. The culture in this industry seriously needs to change.”

Consumer advocacy Choice is also concerned. Spokesman Tom Godfrey said there are a few things buyers need to watch out for when considering car merchant lending.

“Car manufacturers are great at dangling deals in front of consumers who are keen to pick up a new set of wheels,” Godfrey told The New Daily.

“But tempting, interest-free offers are unlikely to apply to the duration of the loan and once the interest-free period is up consumers can find themselves liable for large lump-sum payments.

“As we’ve seen from the BMW finance scandal, car manufacturers can be keen to sign you up to loans you may not necessarily be able to afford, so we would urge consumers not to get caught up in the hype around buying a new car and to first work out whether you can afford the repayments as part of the family budget.”

David Blackhall, CEO of the Australian Automotive Dealer Association, told The New Daily he felt it was inappropriate for his organisation to comment.