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A south-west Sydney car dealership is being sued for allegedly providing unlicensed car loans to consumers, which had “excessive” interest rates.
The Australian Securities and Investments Commission (ASIC) has commenced proceedings in the Federal Court against Diamond Wheels (trading as Lansvale Motor Group), Keo Automotive (trading as Maureen Motors), and a former director for allegedly providing hundreds of unlicensed car loans to consumers, many of whom paid “an excessive interest rate”.
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The financial services regulator is alleging that, at different times between 14 May 2014 and 30 April 2024, the family-run business Diamond Wheels (located on the Hume Highway in the south-west of Sydney) and Keo Automotive provided finance to hundreds of consumers to purchase new and used vehicles, without holding an Australian Credit Licence (ACL).
For example, it alleges that Diamond Wheels engaged in unlicensed credit activity on 7,928 occasions between 24 September 2018 and 5 December 2019 and that Keo Automotive did so on 14,596 occasions between 6 December 2019 and 26 April 2024, being each time it performed or exercised the rights of a credit provider under the Diamond Wheels Contracts.
The regulator alleges Lansvale Motor Group (operated by Diamond Wheels) and Keo Automotive received repayments of principal and payments of interest, fees and charges from consumers and were, therefore, in breach of the National Consumer Credit Protection Act 2009.
Neither Diamond Wheels nor Keo Automotive has ever held an Australian Credit Licence, nor been effectively authorised to engage in credit activities, according to ASIC.
Moreover, ASIC’s case argues that in the course of providing credit, Diamond Wheels and Keo Automotive charged consumers significantly more interest than allowed for under the National Credit Code.
In many instances, ASIC said it was concerned that consumers were charged interest calculated as a flat rate applied to the initial loan amount – resulting in roughly double the amount of interest that could lawfully be charged.
ASIC has alleged that the activity has resulted in “considerable harm” to consumers, particularly as they were denied the protections sought to be afforded to them by the Credit Act, including the responsible lending requirements.
The financial services regulator has also named Ken Keomanivong in the court case, as he was a director of Diamond Wheels from 20 March 1995 to 30 July 2024 and has been a director of Keo Automotive since its incorporation in August 2019.
ASIC alleges that the director “played a central role in arranging and administering the loans”.
According to ASIC’s statement, in addition to being one of two directors of Diamond Wheels, Keomanivong had oversight of the day-to-day operations of Diamond Wheels and the operations of Maureen Motors (in addition to being a director) for a period of time in question.
He was the person to whom sales and finance staff reported at both dealerships during the periods of his oversight, reportedly devised and directed the systems and processes relating to the Diamond Wheels Contracts, and personally approved most, or all, of the Diamond Wheels Contracts, according to the regulator.
In its case, ASIC is seeking declarations, civil penalties and injunctions for the alleged contraventions, including injunctions against Keomanivong to prevent him from being involved in credit activities.
ASIC deputy chair Sarah Court said: “ASIC is concerned that consumers with these loans were significantly overcharged and that their contracts missed key information. Consumers who apply for loans must be able to understand what they are paying for.
“Ensuring consumers are afforded the protections of the credit legislation remains a priority for ASIC. This is the first civil proceeding we have taken to address lending practices by car dealerships.
“Car dealers offering finance should be on notice that ASIC is looking closely at how they are operating.”
The court case comes as the financial services regulator continues its focus on car finance.
Speaking at ASIC’s Annual Forum 2023 late last year, Court stated that one of its new enforcement priorities for 2024 would be “the provision of used car finance to vulnerable consumers, which includes misconduct by brokers, car dealers and finance companies”.
She added that compliance with financial hardship obligations would also be an enforcement priority for 2024, following “the action [it] took against Westpac earlier this year” after the major lender failed to process 229 hardship applications within the required time frame.
[Related: ASIC has car finance brokers in its sights]
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