A car financier will have to refund more than $400,000 to 177 consumers following an ASIC surveillance which found that the car financier charged consumers an interest rate higher than the maximum allowable under the National Credit Act.
ASIC found that Inhouse Finance Group, which provides loans for cars purchased from Best Buy Autos in Sydney, was requiring consumers to purchase a warranty product if they were unable to pay an 80 per cent deposit. This requirement was in place until 30 June 2014.
The cost of the warranty was included in the amount borrowed under the loan contract and this cost should have been included in the calculation of the annual percentage interest rate.
As such, the miscalculation led to some consumers being charged an annual interest rate of up to 90 per cent on their car loans when the maximum legal allowance is 48 per cent.
ASIC voiced its concerns to the company, which has since stopped requiring its customers to purchase the warranty, making it optional instead (regardless of the amount of the deposit paid).
Of these 243 contracts written under this format, ASIC was concerned that 177 would be collecting more than the maximum 48 per cent interest allowable under the National Credit Act.
However, as part of an Enforceable Undertaking (EU), the company will provide redress to customers who were obliged to purchase the warranty and entered into a loan with Inhouse Finance Group for a car purchased from Best Buy Autos between 1 July 2013 and 30 June 2014. This is estimated to be more than $400,000.
The EU will see Inhouse Finance Group undertake a remediation program, overseen by an independent auditor, who will report to ASIC to ensure that affected consumers do not pay more than the maximum allowable interest rate of 48 per cent, and make refunds where appropriate; and engage an independent expert to review its current business operations and compliance with the consumer credit regime and report to ASIC accordingly.
ASIC deputy chair Peter Kell commented: "Credit licensees must understand the law around the maximum interest rates they can charge consumers and what fees and charges need to be factored into the calculation of the interest rate.
"As this case demonstrates, practices that require a consumer to purchase an additional product when taking out a loan may result in a lender entering into a contract where it is charging more than the maximum allowable under the law.
"Such practices may harm consumers as it can result in the consumer borrowing more than they can afford – especially because they are primarily focused on purchasing the car and financing that purchase", Mr Kell said.
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