Toyota Finance has been served with a class action over unfair dealer loans. The lawsuit alleges that between 2010 and 2018, there was an undisclosed ‘flex commission’ arrangement between Toyota Finance Australia and its dealerships which encouraged dealers to inflate interest rates on loans they arranged for customers.
Acting for the plaintiffs, Echo Law said the arrangement created an undisclosed conflict of interest between the dealer and the customer, resulting in customers paying significantly higher interest charges than they would have otherwise agreed.
Allegations made in the proceeding include that Toyota Finance:
- Engaged in unfair conduct in contravention of section 180A of the National Consumer Credit Protection Act 2009 (Cth)
- Entered its customers into unjust loans within the meaning of section 76 of the National Credit Code
- Engaged in misleading or deceptive conduct in contravention of the Corporations Act and / or the ASIC Act
Echo Law also alleged that the loans were entered into pursuant to a causative mistaken belief and are therefore void and entitled to be rescinded.
The class action is seeking compensation on behalf of all customers who entered into a Toyota Finance dealership loan between 1 January 2010 and 31 October 2018 who were affected by these practices.
“This class action is about holding Toyota Finance to account for putting in place dealer loan arrangements that it knew were unfair and against the interest of Toyota customers,” said Andrew Paull, Partner at Echo Law.
“There are hundreds of thousands of Toyota customers who took out dealership loans between 2010 and 2018 that were subject to these unfair arrangements, and who we say are worse off because of them. Most concerningly, it appears that these practices resulted in vulnerable customers, such as those with low financial literacy, paying the most inflated interest rates. Some of these loans are continuing today.
“The total extra costs paid by Toyota Finance customers is estimated to be in the hundreds of millions of dollars.”
According to Echo Law, ‘flex commission’ arrangements were strongly criticised at the recent banking royal commission, which focused on arrangements between Westpac and car dealerships that the bank admitted created “unfairness”. In November 2018, these types of arrangements were expressly banned by an ASIC instrument.
The legal firm said that until now, Toyota Finance – Australia’s biggest car lender – had escaped scrutiny for allegedly engaging in behaviour that landed banks in hot water.
“We allege that by these practices, Toyota Finance has engaged in misleading conduct and has breached the prohibitions on unfair or dishonest conduct contained in Australia’s credit laws.”
One of the customers participating in the class action, Sheridan May, alleges she was sold a Toyota Finance loan when purchasing a car in 2015. According to Echo Law, the interest rate on the loan was set at 11 per cent per annum, much higher than some other Toyota Finance loans and the going market rate for secured car loans.
“I had no clue that the dealer would get paid extra if they increased the costs on my loan,” said May. “I had believed everyone was treated fairly. It was only later that I realised my loan was unusually expensive.”
Echo Law said proceedings were lodged in the Supreme Court of Victoria and Toyota Finance must file its appearance before the parties attend a case management hearing.