In 2019, the Australian Banking Royal Commission acted on the growing complaints against car dealers who sign up customers for loans they can’t afford to pay. In his final report, Royal Commissioner, the Hon Kenneth Hayne AC QC, who led the year-long probe of the faulty financial service practices, recommended the abolition of the Point of Sale (POS) Exemption.
Consumer advocates welcomed the Royal Commissioner’s report exposing the predatory selling practice. Many believe the POS exemption was a “loophole” that has allowed not a few car dealers to offer auto loans even without proper assessment of the customer’s financial capability. Amanda Storey, the Director of Legal Practice at the Consumer Action Law Centre remarked that when consumers are purchasing any products via financing deals, it’s important that they deal with the right financial experts.
As it is however, when a person goes to a car dealer or a car yard, he or she will be met by a dealer who is good at selling cars. The problem however is that in order to close a sale, some car dealers offer complex and expensive auto loans. Since their job is to sell cars, they simply close an auto financing contract even if buyers do not fully understand the financial obligations they face.
While the expected date of the POS Exemption abolition was estimated to have taken place last February 2020, there is still no legislative action ordering its removal. To date, no one can tell what the new rules will be, although some reports say that the new rules will limit the ability of car dealers to offer auto financing if they do not have an Australian Credit License.
What Exactly is the POS Exemption and What Made It Wrong?
Ironically, the Point of Sale Exemption came about in 2009, in relation to a consumer credit protection reform that required sellers to have a credit license to be able to offer consumers financing deals to purchasers. The reform however, excluded car dealerships, as it was deemed that the new rule will negatively impact the profitability of the car-selling industry.
At that time though, the so-called POS exemption for car dealerships was meant to be temporary, as there was no clear plan yet on how car dealers can sell cars without a financing product to offer a potential buyer.
As it is, whatever the outcome of auto financing deals, car dealerships are able to receive payment from banks or financing institutions for vehicles sold by way of auto loans. As a result, not a few servicing banks and financing institutions ended up dealing with bad auto loans. In order to recover the money paid to car dealerships, the lenders had to repossess the cars held as collaterals on consumers’ auto loans.
That being the case, many consumers ended up with huge debts and with no vehicle at all, despite the sums of money previously paid as car loan amortizations.
National Loans Australia Can Help Consumers Obtain Customised Auto Loans
Up to this day, the POS Exemption remains in place, despite the Royal Commissioner’s recommendation to abolish it. We can only assume that Australia’s policymakers have had their hands full since there have been more pressing economic and health problems caused by the pandemic.
In the meantime, National Loans Australia (NLA) gives advice for consumers not to readily sign-up for any auto financing deals being offered by car dealers. The financial experts at NLA recommend that before shopping around for a new vehicle, find out first how much money you’ll be able to borrow for a new car by filling up the online Loan Pre-Approval form at their website.
Obtaining an auto loan is not a trivial matter because the monthly amortizations, as well as the overall costs of car ownership can overwhelm your personal finances.
Nonetheless, the NLA team members can help as they’ve had more than 24 years of experience in brokering bespoke auto loans that best suit their customer’s needs and financial capability.