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16-417MR ASIC action sees BMW Finance pay $77 million in Australia's largest consumer credit remediation program
ASIC has accepted an Enforceable Undertaking (EU) from car financier, BMW Australia Finance Limited (BMW Finance), which will see BMW Finance implement Australia's largest consumer credit remediation program to compensate customers for its responsible lending failures.
BMW Finance provides motor vehicle finance to consumers, directly and through a network of motor vehicle dealers. The affected consumers have car loans for a wide range and variety of vehicles and car brands, both new and second hand.
The program which is open to all of its customers under the BMW Financial Services, Mini Financial Services and Alphera Financial Services brands, will provide at least $72 million in redress for consumers made up of:
- $14.6 million in remediation payments;
- $7.6 million in interest rate reductions on current contracts; and
- $50 million in loan write offs.
BMW Finance has also agreed to pay a $5 million community benefit to contribute to consumer advocacy and financial literary initiatives.
The remediation program will identify at least 15,000 customers, who between January 2011 and August 2016 may have suffered hardship as a result of BMW Finance's compliance failures, and will ensure appropriate remediation. BMW Finance will also remove default listings and buy back all debt sold to third parties to ensure that the written-off loans are not subject to further collections activities.
The program will be overseen by an independent remediation consultant, who will periodically report to ASIC on its progress and BMW Finance's compliance with the program.
'BMW Finance had a sales-driven culture that failed to comply with the requirements of the credit laws and resulted in poor outcomes for many consumers. We are encouraged that BMW Finance has recognised these shortcomings and agreed to a remediation program that will see thousands of consumers compensated,' said ASIC Deputy Chairman, Peter Kell.
'This is an example of the staggering cost of poor business practices and should act as a warning to other car financiers to get their houses in order' Mr Kell said.
While more than 15,000 customers will be invited by BMW Finance to participate in the program, customers who think they might have experienced hardship as a result of entering into their loan are encouraged to immediately register for the program by calling 1800 448 225 or emailing BMW using the details below.
ASIC has also amended BMW Finance's Australian Credit Licence to extend an external consultant's oversight of BMW Finance until the end of 2017 and introduce 'live review' testing of credit applications.
Consumers can also find out if they are due any compensation from BMW Finance by visiting ASIC's MoneySmart website. The website also has useful information on car loans and the new MoneySmart Cars app that helps you work out the real cost of buying a car.
The Remediation Program
The Program is designed to provide consumer redress where BMW Finance is likely to have caused hardship as a result of its failure to comply with its responsible lending obligations. Hardship can take many forms and may not have solely occurred in the consumer's loan. For example, hardship may have materialised in the consumer's other liabilities, such as their home loan and/or credit card.
Consumers can register for the Program
The Program is free for all consumers and provides the opportunity for consumers to discuss their hardship, have their situation reviewed, and be provided with fair and equitable redress.
Consumers can choose to participate in the Program and if they are not satisfied with the offer they receive, they can lodge a complaint with the Credit and Investments Ombudsman (CIO) (www.cio.org.au).
BMW Finance will proactively contact consumers who are most likely to have suffered hardship. However, the Program is open to all consumers, who have entered into a consumer loan between 1 January 2011 and 31 August 2016, who believe they have experienced hardship as a result of BMW Finance's lending practices.
Consumers can register and get more details on the Remediation Program by:
- Telephone: 1800 448 225 from 08.00 to 17.00, Monday to Friday (excluding public holidays AEST)
Extended oversight of BMW Finance's lending business
In addition to the EU, BMW Finance has had conditions placed on its Australian credit licence (credit licence). In January 2016, BMW Finance had an external compliance consultant condition (the condition) placed on its credit licence following concerns raised by ASIC. The consultant is required to conduct a review of, and report to ASIC on, BMW Finance's policies and procedures on a quarterly basis over 12 months to ensure compliance with consumer credit laws.
As a result of the serious concerns raised in the consultant's first report, the condition has been extended until the end of 2017. Among other things, the condition requires the consultant to:
- 'live' review a sample of applications for credit, prior to credit being offered, to prevent further consumer harm and to ensure BMW Finance's ongoing compliance with its responsible lending obligations, and
- review a sample of current credit contracts (entered into prior to the 'live' review) for compliance with BMW Finance's responsible lending obligations and debt collection activities.
History of the matter
BMW Finance provides motor vehicle finance to consumers, directly and through a network of motor vehicle dealers.
ASIC has taken a number of regulatory actions in relation to BMW Finance's lending and collections activities:
- In January 2015, ASIC issued 36 infringement notices (INs) to BMW Finance totaling $306,000 after finding that it breached consumer protection provisions relating to the repossession of motor vehicles (refer 15-037MR).
- In January 2016, ASIC placed a condition on BMW Finance's licence requiring it to appoint an independent compliance consultant to conduct a review of, and report to ASIC on BMW Finance's operations on a quarterly basis over 12 months.
- In February 2016, ASIC issued 22 INs to BMW Finance totalling $391,000 after finding that it breached consumer protection provisions relation to the repossession of motor vehicles and responsible lending breaches (refer 16-019MR).
The National Consumer Credit Protection Act 2009 (National Credit Act) allows INs to be issued for strict liability offences and certain civil penalty contraventions where ASIC has reasonable grounds to believe a person has contravened the provision. The payment of an IN is not an admission of a contravention of the National Credit Act.
ASIC’s responsible lending work
ASIC has had a particular focus on the responsible lending laws across the credit industry, not just in the car loan space, as these are key consumer protection provisions. ASIC is also focused on repossession laws and ensuring that vulnerable consumers are not taken advantage of. Some outcomes are listed below:
- The Federal Court found that Cairns-based car yard lender and broker (Channic Pty Ltd, broker Cash Brokers Pty Ltd and the sole director of both companies, Mr Colin William Hulbert), breached consumer credit protection laws when they provided loans to vulnerable indigenous consumers for the purchase of second hand cars (refer: 16-335MR)
- Westpac paid $1 million following ASIC's concerns about credit card limit increase practices (refer: 16-009MR).
- Westpac car financier, Capital Finance, paid $493,000 for breaching consumer protection repossession laws (refer: 16-106MR)
- Bank of Queensland Limited improved its lending practices following ASIC's concerns about the way it assessed applications for home loans (refer: 15-125MR).
- The Federal Court of Australia awarded $18.975 million in civil penalties against The Cash Store Pty Ltd and Assistive Finance Australia Pty Ltd for their failure to comply with responsible lending obligations (refer: 15-032MR).
- Wide Bay Australia Ltd (now Auswide Bank Ltd) made changes to their responsible lending policy as a result of ASIC's intervention (refer: 15-013MR).
- Abaz Pty Ltd paid an infringement notice for failing to obtain and consider bank statements as required by the legislation (refer: 14-313MR).
ASIC's Regulatory Guide 209 Credit licensing: Responsible lending conduct was updated in November 2014, and reflects the Federal Court decision in ASIC v The Cash Store (in liquidation)  FCA 926.
In September 2016, ASIC published Regulatory Guide 256: Client review and remediation conducted by advice licensees (refer: 16-311MR). This guide sets out our guidance on review and remediation conducted by Australian financial services (AFS) licensees who provide personal advice to retail clients (advice licensees). The guidance should also be applied to review and remediation that is not related to personal advice to the extent relevant.