Inhouse Finance Group (Sydney) Pty Ltd (Inhouse Finance Group) will 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.

Inhouse Finance Group provides loans for cars purchased from Best Buy Autos in Sydney. In doing so, it required consumers to purchase a warranty product if they were unable to pay an 80 per cent deposit. 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. 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 allowed by law is 48 per cent.

In response to ASIC's concerns, Inhouse Finance Group stopped requiring its customers to purchase the warranty, which is now optional regardless of the amount of the deposit paid.

The Enforceable Undertaking (EU) accepted by ASIC will ensure that appropriate redress is provided to those consumers who entered into a loan with Inhouse Finance Group for a car purchased from Best Buy Autos between 1 July 2013 and 30 June 2014. As part of the EU, Inhouse Finance Group is required to:

• 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 said, '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 focussed on purchasing the car and financing that purchase',  Mr Kell said.

Inhouse Finance Group will contact affected consumers to explain what refund they might get or if their loan repayments or loan term will be reduced. If consumers have any concerns about their loan they should contact Inhouse Finance Group on (02) 9727 9047.

Background

Inhouse Finance Group (Sydney) Pty Ltd provides finance to customers of Best Buy Autos, a used car retailer operating from several locations across Sydney, New South Wales. Best Buy Autos operates the website www.bestbuyautos.com.au. Inhouse Finance Group itself operates the website http://www.inhousefinancegroup.com.au.

Inhouse Finance Group's requirement, which was in place until 30 June 2014, required that a consumer purchase a warranty if they were unable to pay a deposit of 80 per cent, which was subsequently revised to 60 per cent during the period of ASIC's surveillance.

During the period 1 July 2013 to 30 June 2014, Inhouse Finance Group entered into 249 loan contracts with customers of Best Buy Autos. On 243 occasions (representing 97.5 per cent of contracts), Inhouse Finance Group also required consumers to purchase the additional warranty. Of these 243 contracts, ASIC is concerned that 177 would be collecting more than the maximum 48 per cent interest allowable under the National Credit Act.

On 1 July 2013, Commonwealth legislation introduced a cap on the maximum amounts a lender is allowed to charge for consumer credit. This supersedes the previously state and territory-based interest rate caps.

ASIC has also undertaken other work in relation to the car finance industry , in particular around the sale of add-on insurance through car dealers (refer 16-301MR).

More recently, ASIC accepted an Enforceable Undertaking from BMW Finance for its responsible lending failures, which will see the car financier implementing a $77 million remediation program to compensate affected consumers (refer 16-417MR).

ASIC's MoneySmart website has useful information for consumers on car loans as well as the MoneySmart Cars app that helps people work out the real cost of buying a car.