Western Australia-based car finance provider Get Approved Finance allegedly engaged in unfair conduct by approving approximately $1.38 million in car loans for consumers with poor credit histories, according to the corporate watchdog.
Esanda, a subsidiary company of ANZ that financed the loans, will compensate 70 car loan borrowers after the Australian Securities and Investment Commission found 15 brokers at Get Approved Finance approved loans between 2011 and 2015 that did not meet Esanda’s lending criteria.
ASIC alleges the brokers misled friends and family of initial loan applicants into thinking they were going guarantor for the loans, but were instead listed on signed documents as the nominated borrower.
ASIC said in a statement some borrowers were also sold add-on products, such as insurance or warranties, at significant additional costs without their knowledge or consent.
It also found Get Approved Finance benefited from commissions earned from Esanda and the providers of the add-on products.
ASIC deputy chairman Peter Kell said in the statement the case shows how some brokers can be tempted to take “extreme steps to ensure that a loan is approved, to ensure they can earn commissions from the lender and from the sale of add-on products”.
“Lenders must have effective systems in place to address this type or misconduct by brokers, or else they will run a substantial risk of having to compensate consumers when it occurs,” he said.
Two Get Approved Finance brokers were permanently banned by ASIC in July this year for similar matters.
ASIC is still investigating Get Approved Finance and Esanda over the matter, with Esanda agreeing to undertake new compliance measures with loan applications.
Professor of commercial law at Melbourne University, Ian Ramsay, told SmartCompany this morning the case is significant as Esanda is a large finance company and connected to one of the big four banks.
“I think it is significant in that Esanda here didn’t have in place proper systems or process to stop what looks to be fraud going on,” he says.
Ramsay says the case highlighted a number of issues to do with lending systems.
“One is that it shows some of the largest providers of finance continue to have problems with their compliance systems. The system has failed in quite a significant way,” he says.
He says getting other people to sign on the loans and misleading them, while profiting from it, constitutes “appalling” circumstances.
Given two Get Approved Finance brokers were previously banned by ASIC, Ramsay says one important question is whether or not ASIC’s permanent bans or long-term bans are sufficient.
“Does it send a sufficient deterrent message out there into the industry?” he says.
“Simply banning people when they’ve profited significantly from wrongdoing (might not be enough). All you are doing is banning them from financial service, they can move onto other things.”
Ramsay also questions whether further penalties could be applied.
“Whether or not you need criminal proceedings to be brought, it’s about which sends the strongest message,” he says.
“The main question is whether following further investigations, ASIC believes there is any breach of the law that might lead to criminal prosecution.”
A spokesperson for ANZ told SmartCompany this morning the bank has co-operated with ASIC from the start, having initially identified the loans in question.
“ANZ identified around 70 Esanda loans introduced by Get Approved Finance that were based on misleading documents provided by Get Approved Finance,” the spokesperson says.
“We have assisted ASIC with its review into Get Approved Finance and our immediate priority has been to apologise and compensate affected customers.
“The impacted loans are excluded from the Esanda Dealer Finance portfolio which ANZ has agreed to sell to Macquarie Group Limited.”
SmartCompany contacted Get Approved Finance and Esanda but did not receive a response prior to publication.