Australia's banking royal commission has turned its attention to Westpac Banking Corp. for approving car loan applications with incomplete financial information and issuing loans that borrowers cannot repay, Reuters reported March 21.
The judicial inquiry into Australia's financial sector heard that the bank's auto-financing unit accepted loan applications with no expense information and relied heavily on car dealership managers when processing loans, the report said. The bank was also found to have paid "flex commissions" to dealerships when they signed customers to loans with higher interest rates. The flex amount is added to the base rate set out by the bank, resulting in borrowers unknowingly paying more for their loans.
The corporate regulator has banned flex commissions after it found that customers were paying excessive rates on car loans. The ban will take effect in November.
Phillip Godkin, Westpac's general manager for specialist finance, admitted that the bank had not taken reasonable steps to verify customers' finances and that it relied on dealerships to verify them. He also noted that some of the loans should have been declined.
Australia's banking royal commission has found a series of instances of misconduct since it began hearings March 13, including fraud committed by bank employees to gain commissions, poorly arranged incentive payments and the selling of financial products to unqualified customers, among others.