‘Significant indicators of consumer harm’ found in car lending

The Australian Securities & Investments Commission (ASIC) has released a new report about the car finance industry, saying that improvements need to be made in car lending after finding “significant indicators of consumer harm”.

In REP 832, Lifting the bonnet: ASIC’s review of car loans, the regulator said that consumer harm indicators include:

• Borrowers missing repayments or paying late, particularly in the first year of their loan term (nearly half of those defaulted in the first six months).

• Lenders refusing hardship applications or being contacted about debt collection, even when hardship variations were in place.

• Poor use of data by lenders to monitor product distribution to ensure that products reach the right consumers.

• Debt remaining after repossession (nearly 90 per cent of consumers owed more than half of their original loan amount after being repossessed – and the purchase price of a car for which finance was provided was often significantly higher than the lender-verified ‘book value’ of the car).

Other issues flagged by the regulator during its review included “problematic sales tactics, and a lack of regular audits and checks by lenders”.

What ASIC looked at

After seeing 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, ASIC reviewed data from eight participating lenders on car loans which commenced between March 2023 and March 2025:

• Australian Alliance Automotive Finance Pty Ltd (AAAF)
• Angle Auto Finance (Angle Auto)
• Latitude Automotive Financial Services (Latitude)
• Nissan Financial Services Australia Pty Ltd (Nissan)
• Pepper Asset Finance Pty Ltd (Pepper)
• Plenti Finance Pty Ltd (Plenti)
• Rapid Loans Pty Ltd (Rapid)
• Toyota Finance Australia Limited, including PowerTorque Finance (Toyota Finance).

The initial phase of this review examined every stage of a customer’s journey, from finance application, loan assessment, and responsible lending checks to hardship requests, support, and dispute resolution.

It also considered a range of indicators of consumer outcomes over that initial loan term, as well as median interest rates and product range.

ASIC found that median interest rates varied widely (ranging from around 10 per cent to up to 22 per cent) – largely as a result of business risk appetite and the underlying assets – with loan terms generally between 12 and 84 months.

It also noted significant variations in loan establishment costs. For example, one lender was found to have loan establishment fees as high as $9,000 on a loan of $49,000.

According to the regulator, there was also poor use of data in product monitoring, for example, ineffective product review triggers, and greater oversight of distributors was needed.

ASIC also looked at intermediary relationships. It found that all eight lenders rely mostly on third-party distribution models, either aggregators, brokers, or car dealerships (or a combination of these).

Pepper Money, Plenti, and Latitude were found to have the largest volume of broker-originated loans of all eight lenders, with Plenti having the largest number of brokers writing its car loans (1,444).

What has ASIC recommended?

Lenders were asked to implement a range of improvements by ASIC following the review, including the frequency and quality of oversight of brokers and other “high-volume distributors” (for example, by monitoring quarterly).

Specifically, it said there needed to be better training, accreditation processes, and oversight of lenders’ finance distribution channels.

It also suggested lenders consider an uptick in monitoring of distribution channels, including quality assurance and monitoring a range of indicators, such as hardship requests and complaints for loans through those distribution channels.

Other recommendations included:

• Improving product distribution conditions in their target market determinations (TMDs).
• Putting in place stronger product review triggers and risk frameworks using consumer harm indicators and available data (including internal and external dispute resolution data to ensure products reach the right target market).
• Removing any “problematic sales practices” such as high-pressure sales tactics and overriding consumer objections to certain types of finance.

ASIC also said there needed to be improved communication when financial hardship arrangements are in place, including better information on voluntary surrender options.

Many of these actions have already been made by the lenders that were part of the review, including an agreement to review credit decision processes, bank statement analysis, and approval scorecards.

However, ASIC said that – given the wide breadth of concerns raised in complaints to ASIC about this sector – it would “monitor the impact of participating lenders’ actions”.

“When we identify lenders or intermediaries that are failing to comply with their legislative obligations, we will take targeted action to address harm to consumers,” it said.

Speaking of review findings, ASIC commissioner Alan Kirkland said: “We saw instances of loan establishment fees as high as $9,000 on a loan of $49,000.

“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.

“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 such considerable cost differences exist”.

It will also seek to understand “why many customers cannot keep up with repayments in the first year of their loan term.”

Kirkland said: “We’ve identified areas where lenders must lift their standards, or risk leaving consumers exposed to poor financial outcomes.

“ASIC will take enforcement action to protect consumers where appropriate.”

[Related: ASIC warns auto finance lenders to raise standards]

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