Need to know
- ASIC has sued car loan provider Money3 for allegedly breaching responsible lending laws
- Financial counsellors who spoke to CHOICE say the practice is more widespread than the six instances currently before the court
- Money3 denies any breaches and says it acts in a fair and transparent way with borrowers
Financial counsellors are sounding the alarm about an "irresponsible" car loan provider targeting people on low incomes.
These consumer advocates say Money3 Loans is failing to properly assess whether its customers can pay off the loans, and is charging exorbitant interest rates on top of that.
Last year the Australian Securities and Investments Commission (ASIC) sued the lender for alleged breaches to responsible lending laws.
The case, which is still before the courts, alleges that Money3 failed to take reasonable steps in six instances to ensure the car loans they handed out were suitable for the clients, many of whom were on Centrelink incomes.
The counsellors we talked to say they are aware of the lender providing unsuitable loans on a broader scale
"An $11,000 loan is a substantial sum for a consumer on a low income to repay without having been properly assessed as to whether they could afford to repay it. In some cases the vehicle broke down, leaving the consumer with an unusable car and a loan that they couldn't afford, compounding the detriment,' ASIC deputy chair Sarah Court said.
Money3 holds a credit licence, which carries certain legal obligations when it comes to responsible lending.
The company tells us it's defending the claims made by ASIC and that it doesn't believe it has contravened any laws.
Beyond these six cases, CHOICE has spoken to financial counselling organisations in Victoria, New South Wales and Queensland.
The counsellors we talked to say they are aware of the lender providing unsuitable loans on a broader scale.
Azlan's case: 'I didn't really understand what was happening'
When Melbourne-based Malaysian man Azlan* wanted to buy a second car in August last year so his wife could get around independently, he visited a local used car dealer.
Azlan's English is limited and, after telling the dealer that he couldn't afford the repayments they were asking for, the dealer arranged for him to speak to Money3.
The lenders proceeded to sign him up to a loan over the phone without an interpreter.
I feel like I was tricked by the car dealer
Azlan, Money3 customer
"I think it would be a good idea [that] for people whose English is not their first language the dealer should have an interpreter for them. The way they did it was not fair," Azlan says.
Money3 says where required, customers who speak a language other than English are offered to speak with an employee who speaks the same language or an interpreter service provided by their broker (in this case the dealership).
Azlan got help from the Consumer Action Law Centre in Melbourne, who was able to get his loan and interest repayments waived (other than what he had already paid), but he says he never should have been signed up in the first place.
"I didn't really understand what was happening to me, I feel like I was tricked by the car dealer," he says.
Failure to assess individual's situation
Money3 was one of the top three creditors involved with financially distressed clients of the Indigenous Consumers Assistance Network (ICAN) in Far North Queensland last year, according to the organisation's operations manager Jillian Williams.
"It's no surprise to me at all that ASIC has taken this action. We regularly see breaches of responsible lending laws by Money3," she says.
"They appear to rely on a benchmark to assess the affordability of a loan and those benchmarks often fall short of what is actually happening financially for the person that they're lending to. So it means that people will frequently fall into hardship."
Benchmarking is when a lender bases living expenses on generalised data instead of an individual's actual expenses. There are several different commonly used benchmarks, with the Household Expenditure Measure (HEM) being one of them.
Benchmarking is when a lender bases living expenses on generalised data instead of an individual's actual expenses
The company says it conducts "a detailed assessment of the customers' disclosed financial situation, seeking to verify disclosed information against external sources for accuracy. When expenses are omitted or understated the HEM is used. This is an added protection to ensure expenses are not understated in the financial assessment process."
Williams says that Money3 provides loans for cars that often come from a handful of problematic dealerships in Cairns that are known for selling lemon vehicles. It means ICAN's clients, many of whom are remote First Nations customers, are often left paying off long-term loans for cars they can't even drive.
Williams says that Money3 provides loans for cars that often come from dealerships that are known for selling lemon vehicles.
'Not a responsible lender'
Bella, a financial counsellor based in Sydney, doesn't hesitate to share her experience when asked about Money3. (Bella is a pseudonym as she was not authorised to speak publicly on the issue.)
"They're not a responsible lender at all," she says.
One of her Money3 clients, who was living on welfare benefits, ended up with a loan of about $12,000 with a comparison rate of almost 30%. The repayments left her in debt and she had to consider surrendering the car, however she needed it to take her son, who lives with a disability, to his appointments.
Eventually Bella was able to negotiate with Money3 for a partial waiver of some of the interest and for her client to be put on a more affordable repayment plan.
Exorbitant interest rates
Tom Abourizk, head of policy at CHOICE, says adherence to responsible lending laws is vital to ensure lenders don't set borrowers up to fail.
"It makes sense that these are obligations that apply to lenders rather than borrowers, because they are the experts in the field," he says.
Money3's website says the business will give customers a "fair go" and lend to people who may be turned down by mainstream lenders. But the big loans and high interest rates can clearly lead to problems.
The marketing pitch for the company is that people on Centrelink incomes are eligible for up to $75,000 for a car loan.
A $5000 car loan over a 24-month period would incur almost $2000 in fees and interest
But its website also delivers an ugly truth.
It says a $5000 car loan over a 24-month period would incur almost $2000 in fees and interest, equal to an annual percentage rate of almost 14% and an overall comparison rate of over 34%.
"30% in interest and fees on any sort of loan is a really expensive rate for credit. It is likely to be extremely difficult for anyone on a low income to afford the repayments on that kind of loan, but people may have few other options," Abourizk says.
Money3 tells us its aim is to help customers access finance for a car in a fair and transparent way.
"We understand people's circumstances change after a loan is entered into and encourage any customers facing financial difficulty to make contact to discuss the options available to them," a spokesperson says.
*Not his real name.
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