BMW's car financing arm has been ordered to engage an independent expert to review its procedures, and been slugged with its second fine in 12 months, as the corporate regulator steps up oversight of the German giant.
Adding to the heat on the sector's lending practises, the Australian Securities & Investments Commission yesterday revealed it had a placed a condition on BMW Australia Finance's credit licence after breaching consumer protection provisions for responsible lending and the repossession of vehicles.
BMW, which paid $391,000 in penalties, must appoint an independent compliance consultant to review its policies and procedures on a quarterly basis over 12 months and report to ASIC to ensure compliance with consumer credit laws.
"ASIC will continue to monitor compliance with these provisions to reduce the risk of borrowers being placed into unsuitable loans, and to ensure that borrowers are informed of their rights and options available to them when facing financial hardship," ASIC deputy chair Peter Kell said.
It follows ASIC's move 12 months ago to slap BMW with 36 infringement notices, totalling $306,000, after finding the car finance company breached consumer protection provisions for vehicle repossession.
More recently, ASIC has uncovered widespread wrongdoing in the industry by Get Approved Finance, a West Australian car finance arranger. Between 2011 and 2014, ASIC found that the company's brokers engaged in "unfair conduct" by having car finance provider Esanda approve loans for consumers with poor credit histories, even though they did not meet its lending criteria.
In 2014, the company made a net profit of $113m, up 28 per cent on the prior year
In BMW's case, ASIC yesterday said that between November 2014 and May last year BMW failed to make reasonable inquiries about consumers' living expenses, income and cash when there was an "unexplained discrepancy" in the figures.
The company also didn't properly inquire about consumers' capacity to repay substantial "balloon repayments" due at the end of the loan term.
The regulator said BMW entered into "unsuitable credit contracts" when documentation showed there was insufficient income to service monthly loan repayments.
Finally, BMW failed or was slow to provide information setting out consumers' rights and options after a mortgaged vehicle was repossessed or voluntarily returned.
According to the most recent financial accounts filed with ASIC, BMW Australia Finance is highly profitable.
In 2014, the company made a net profit of $113m, up 28 per cent on the prior year as impairment losses dived to $31.1m.
It generated $267m of net interest revenue.
A BMW spokeswoman said it had fully co-operated with ASIC and urged customers who required further information to contact the company.