Class action launched over high-interest Toyota dealer loans

If you purchased a car using a loan from Toyota Finance prior to 2018, you could be eligible to be part of a class action seeking compensation for over-the-top finance charges.

Melbourne law firm Echo Law has served Toyota Finance with a class action over unfair dealer loans.

The class action alleges that between 2010 and 2018 there was an undisclosed "flex commission" arrangement between Toyota Finance Australia and its dealerships.

Flex commissions involve car buyers paying an inflated rate of interest on vehicle finance.

It works by the finance company and dealer deciding a base rate, though the dealer is free to set a much higher rate, and be rewarded with a bigger commission.

The higher the rate and the longer the loan term, the greater the commission the dealer pocketed.

Needless to say, car buyers were kept in the dark about this arrangement, and ended up paying considerably more for vehicle finance than necessary.

Fortunately, flex commissions were banned in 2018, however, they were widespread before this, and a number of class actions have been launched in a bid to secure compensation for affected car buyers.

Maurice Blackburn lawyers, for instance, has served class actions against ANZ (Esanda), Macquarie Leasing, Westpac and St George, estimating that over one million Australians could be eligible for compensation.

Andrew Paull, partner at Echo Law, says, "There are hundreds of thousands of Toyota customers who took out dealership loans between 2010 and 2018 that were subject to these unfair arrangements."

Some of the loans are still being paid off, and Paull estimates the total extra costs paid by Toyota Finance customers is "in the hundreds of millions of dollars".

Anyone who took out a car loan from Toyota Finance between 2010 and November 2018, where the loan was arranged by a car dealer, is eligible to register for the Echo Law class action.

It costs nothing to sign up. Just head to the Echo Law website.

While flex commissions may be banned, Julian Finch, founder and head of Finch Financial Services, cautions against dealership loans.

He says dealerships operate under a loophole that exempts them from strict lending standards, potentially exploiting buyers.

"Some dealerships could charge you for things like advertising of the car, document fees, document processing fees and handling fees, and even monthly service fees," adds Finch.

According to Mozo, one of the cheapest car loans on the market is a three-year term loan with South West Slopes Credit Union. It has a rate of 4.99% and zero application, account or establishment fees.

Get stories like this in our newsletters.