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Tuesday 27 October 2015

15-312MR Esanda compensates consumers for conduct by finance broker

Following an ASIC investigation of Get Approved Finance, a West Australian car finance provider, Esanda has agreed to compensate more than 70 borrowers for car loans organised by Get Approved Finance.

ASIC's investigation found that between 2011 and 2014, over 15 brokers employed by Get Approved Finance engaged in unfair conduct by having Esanda approve loans for consumers with poor credit histories, who otherwise did not meet Esanda's lending criteria. The brokers arranged for a friend or relative of the consumer to become the nominated borrower, instead of the consumer who was not eligible for credit. They did this by misleading the friend or relative about the effect of the documents they were signing, for example, by stating they were a guarantor rather than the borrower.

The Get Approved Finance brokers also sold add-on products (such as insurance or warranties), on behalf of various insurers, to some borrowers without their knowledge or consent. The additional premiums increased the amount borrowed and therefore the risk of borrowers defaulting. In one case, the consumer was sold add-on products costing more than $15,000, increasing the amount borrowed from around $24,000 to over $39,000.

The total value of the loans financed was more than $1.38 million, with some loans approved of over $50,000.

Get Approved Finance was able to earn commissions from both Esanda and the providers of the add-on products that would have been lost if Esanda had rejected the applications for credit. ASIC was concerned that Esanda did not have systems in place to manage the risks created by these commission payments or to effectively identify the serious misconduct by the Get Approved Finance brokers, given that it continued for over two years.  

Following ASIC's investigation of Get Approved Finance, Esanda has agreed to:

  • where the loan is still on foot – offer the consumer the option of entering into a new loan on significantly more favourable terms than the existing loan;
  • where the loan has been paid out – make refunds to the consumer, including interest and the premiums for some add-on insurance products;
  • where Esanda has repossessed the vehicle – not seek any further payments; and
  • remove any default listings resulting from the conduct of Get Approved Finance.

ASIC Deputy Chairman Peter Kell said, 'This case shows that some brokers will 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.

ASIC has permanently banned two Get Approved Finance brokers for engaging in dishonest and misleading conduct in connection with some of these loans (refer: 15-189MR).

ASIC's investigation into the conduct of Get Approved Finance and Esanda is ongoing.

Background

Esanda is a division of Australia and New Zealand Banking Group Ltd.

At the time of the unfair conduct, Get Approved Finance was the trading name, and operated under the Australian credit licence of, West Australian-based finance broker, Jeremy (WA) Pty Ltd.

Editor's note 1

On 27 October 2015, this media release was amended to clarify the trading arrangements of Get Approved Finance at the time of the unfair conduct.

 

Last updated: 27/10/2015 12:00