Toyota Finance Australia facing class action for high-interest loans

A class action lawsuit has been filed against Toyota’s Australian financial division in a Victorian court, alleging the company “ripped off” more than 100,000 customers by charging higher interest rates.

The class action, filed by Echo Law, alleges Toyota Finance Australia – which is separate to Toyota Motor Corporation Australia – facilitated undisclosed arrangements with Toyota and Lexus dealership staff who inflated interest rates on car loans between 2010 and 2018.

While the customers who signed up for the loans paid the higher interest rates, the dealer staff allegedly benefitted from what’s known as a “flex commission” – with Toyota Finance passing on a cut of the profit to those who helped facilitate the deal.

Toyota Finance Australia facing class action for high-interest loans

Echo Law alleges the undisclosed flex commission arrangement created a conflict of interest between dealers and customers, with customers paying more for loans than they otherwise would have – not only compared to the true figure, but also against the industry average.

“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,” Echo Law partner Andrew Paull said in a media statement.

“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.”

In its lawsuit – filed in the Supreme Court of Victoria – Echo Law alleges 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; and
• the loans were entered into pursuant to a causative mistaken belief and are therefore void and entitled to be rescinded.

Flex commissions were heavily criticised during the 2017-18 Banking Royal Commission, which focused on Westpac and St George Finance engaging in the practice with certain car dealers. They weren’t banned by the Australian Securities and Investments Commission until November 2018, however.

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“Toyota Finance Australia Limited acknowledges that class action proceedings have today been served by Echo Law. We will take the time to review the claim carefully before making any statement,” a spokesperson for Toyota Finance told CarExpert.

“As always, if customers have any questions about their finance contract, we encourage them to contact our Customer Service team on 137 200 from 8:30am to 5.30pm AEDT Monday to Friday (excluding public holidays).”

If you purchased a vehicle through Toyota Finance Australia between January 1, 2010 and October 31, 2018, you can register for Echo Law’s class action here.

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