ASIC is targeting misconduct in used car financing.

In a keynote address at the Consumer Rights Forum this week, posted online, ASIC Commissioner Alan Kirkland highlighted the misconduct in used car financing targeting vulnerable consumers. 

This issue has been identified as one of ASIC's enforcement priorities for 2024, with particular concern for First Nations peoples in regional and remote communities being sold a “lemon” - substandard cars at inflated prices.

Consumer groups such as ICAN and Consumer Action have highlighted numerous cases in which consumers end up with unreliable vehicles, mounting debts, and no means of transport. 

ASIC has received significant reports of misconduct in the motor vehicle financing space, both from consumer advocates and through direct complaints.

Kirkland noted that while the sale of lemon cars is governed by a mix of state and federal laws, ASIC's focus is on the provision of credit for vehicle purchases. 

Kirkland said three key areas of law are utilised by ASIC to address misconduct:

  • Unlicensed credit activities: Section 29 mandates that anyone engaging in credit activities must be licensed. ASIC has taken action against entities for bypassing consumer protections and for providing unlicensed short-term credit at exorbitant fees.

  • Responsible lending obligations: Chapter 3 of the Credit Act requires lenders to verify consumers' financial situations and ensure that credit contracts are suitable. One of ASIC's ongoing cases alleges that a company failed to assess borrowers' repayment capabilities, particularly affecting First Nations consumers on low incomes or Centrelink payments.

  • Design and Distribution Obligations (DDO): These obligations, effective from October 2021, require firms to design financial products suited to consumers' needs. Although ASIC has not yet applied DDO in a car finance case, they have used it to stop one distributor from signing up First Nations consumers into detrimental credit arrangements.

Commissioner Kirkland said that over the past decade, ASIC has secured substantial remediation for consumers through enforcement actions against major companies like BMW Australia Finance and Volkswagen Financial Services Australia.

However, he said challenges remain, particularly for consumers in remote and regional areas who face significant barriers in seeking recourse. 

Research indicates that resolving issues with lemon cars can involve numerous steps and substantial costs, often exceeding the vehicle's value.