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The Australian Securities and Investments Commission (ASIC) has revealed that a review into Australia’s motor vehicle finance sector “exposed cracks” in lenders’ oversight and warned that it would take enforcement action to protect consumers.
The regulator has said its review showed problematic sales tactics and a lack of regular audits and checks by lenders.
ASIC’s review follows a spike in complaints about motor vehicle finance to the regulator, as well as reports from consumer advocates about excessive establishment and interest costs as part of various car finance arrangements.
Most lenders examined by ASIC rely on intermediaries, such as brokers and dealerships, to arrange motor vehicle finance, with ASIC uncovering “significant variations” in loan establishment costs.
As part of the review, ASIC commissioner Alan Kirkland said he had witnessed loan establishment fees as high as $9,000 on $49,000 loan.
“We also found that almost half of all consumers who defaulted on their car finance repayments did so within the first six months of the loan. And of vehicles that were repossessed and sold, nearly 90 per cent of consumers still owed more than half of their original loan amount,” Kirkland said.
“These numbers raise questions about whether these consumers have been given loans they cannot afford to repay, which is consistent with key themes in complaints that led to this review.”
ASIC said it would continue its probe to understand why considerable cost differences exist and why many customers cannot keep up with repayments in the first year of their loan term.
The financial services regulator also issued tailored action letters to participating lenders based on its findings, with specific recommendations for each.
The recommendations call for improved training and accreditation, along with better communication around financial hardship arrangements and governance frameworks to strengthen oversight of intermediary brokers and dealers.
Findings from ASIC’s review will be released in 2026 and will include information on how lenders have responded to ASIC’s recommendations.
Misconduct in used car finance sold to vulnerable consumers remains a key enforcement priority for 2025, ASIC said.
Regulation needed to create ‘level playing field’
Eugene Lee, a senior loan specialist at LoanOptions.ai, told Broker Daily he thought the industry required stronger regulation.
“The vehicle finance industry is operating under something called ‘point of sale exemption’, which essentially means they don’t have to be a licensed, accredited, trained finance broker who is looking after the customer’s best interest,” Lee said.
“They are effectively appointed as a ‘point of sale representative’ on behalf of the manufacturer funder. In some cases, that might be the same company that’s selling the vehicles, thus the incentive created is to do whatever it takes to help sell the vehicle.
“More often than not, the dealerships have a floor plan financier who also has incentives in place to use a particular funder versus putting the client with the best-suited funder and finding the best deal for the client.”
Josh Rayson, a director at Corporate Finance (Aust), also said more is needed to be done to create a “level playing field”.
“We need to look at the imbalances provided to consumers under the point-of-sale exemption,” Rayson said.
Rayson pointed to the banking royal commission, which recommended removing the point-of-sale exemption for car dealers, and while this recommendation was accepted, it has yet to become law.
“That means most dealers are unlicensed, yet still able to provide credit to consumers, whereas finance brokers are required to be licensed or be a credit representative of a licensed entity to deal with customers,” he said.
“Once we have a level playing field, we can then see if imbalances that apply today continue to apply.”
Pressure selling and excessive fees under scrutiny
Rayson stressed that lenders that exploit vulnerable consumers and charge excessive fees need to be prioritised by the regulator.
“Consumers who are desperate or vulnerable often have low levels of financial literacy and the National Consumer Credit Protection (NCCP) ACT is designed to protect those consumers from being preyed upon,” Rayson said.
“Until all in the vehicle finance sector are compliant with NCCP and licensing requirements, I can’t see those vulnerable consumers being protected.”
Lee added that pressure-selling tactics should be another focus area.
Dealerships often pressure customers to sign with their in-house finance team by promising they can drive the car home sooner, he said, a tactic commonly used when inviting clients to view newly arrived vehicles.
Lee said the tactic “creates pressure but is also designed to circumvent the broker channel who’s trying to look after the client”.
“They also need to lift their standards in terms of regular audit, compliance checks, looking after the client’s best interests, as well as any other time when they’re trying to pressure sell additional insurance policies and high establishment fees,” Lee added.
[Related: Does private credit need a regulatory crackdown?]
