* Westpac appears at Royal Commission for first time
* Auto-finance sector under scrutiny at powerful inquiry
* Westpac relied on car yard managers to approve auto loans
* Customer says she was threatened when couldn't meet
* Westpac pays bigger commissions to dealers charging higher
(Adds "flex commission" comments)
By Jonathan Barrett and Paulina Duran
SYDNEY, March 21 (Reuters) - Westpac Banking Corp's
auto-finance business approved applications that contained no
expense information, and relied heavily on the advice of
car-yard managers when processing loans, an inquiry into
Australia's financial sector heard on Wednesday.
In Australia, 90 percent of car sales are arranged through
finance organised by dealerships and lenders, according to the
inquiry, with new finance commitments for vehicles last year
totalling A$35.7 billion ($27.5 billion).
The sector, dominated by Westpac, Macquarie Group
and a range of specialist lenders such as Toyota Financial
Services, has been singled out by the inquiry, which can
recommend criminal or civil prosecutions and legislative
The Royal Commission turned its attention to Westpac for the
first time on Wednesday, using the experience of customer Nalini
Thiruvangadam to show how some customers were mis-sold car loans
they could never hope to repay.
In emotional testimony, Thiruvangadam said she signed
documents at a car yard in 2012 that compelled her to pay almost
A$260 a fortnight for what she later found out was a "demo car
that jerked a lot".
Thiruvangadam, who was earning A$350 per fortnight at the
time plus government benefits, said she fell behind on rent
payments and other bills and was subjected to threats by a
Westpac-owned subsidiary of having her car towed should she not
pay out the loan in full.
Westpac general manager, specialist finance, Phillip Godkin
said under questioning on Wednesday that the bank had not taken
reasonable steps to verify the customer's finances, which
included accepting an application with no expenses details, and
that "we shouldn't have made this loan".
Godkin said Westpac relied on car-yard business managers to
verify a customer's financial position.
Westpac compensated Thiruvangadam in 2017.
Albert Dinelli, counsel assisting the commission, said
Thiruvangadam's experience was a case study of issues arising
when some customers transact with auto-finance lenders.
The examination of lending practices at the country's
second-biggest bank by market size follows scrutiny of rivals
Commonwealth Bank of Australia, Australia and New
Zealand Banking Group and National Australia Bank
during the opening week-and-a-half of hearings.
The Royal Commision has found widespread evidence of
financial product mis-selling, poorly-arranged incentive
payments, and fraud.
On Wednesday, the inquiry also heard Westpac was paying
so-called "flex commissions" to dealerships, which earn larger
commissions when they sign customers to higher interest loans.
The flex amount is the difference between the base rate set
by the lender and the rate the dealer sells to the consumer.
Customers are not told about the payments even though they
increase the cost of their loans, Godkin said.
Such commissions will be prohibited from November under new
laws, after the corporate regulator found that consumers were
paying excessive rates on car loans.
Last year, Australia's corporate regulator sued Westpac for
allegedly breaching so-called responsible lending laws by
selling interest-only mortgages to people who could not afford
to repay them.
Westpac is defending the claims in court, which will hold
hearings in September.
($1 = 1.2999 Australian dollars)
(Reporting by Jonathan Barrett and Paulina Duran in SYDNEY;
Editing by Stephen Coates)
First Published: 2018-03-21 05:35:31
Updated 2018-03-21 09:07:33
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