Westpac's $81M Settlement: A Wake-Up Call for Auto Finance

In the annals of corporate missteps, Westpac Banking Corp's recent $81 million settlement over auto finance commissions stands as a stark reminder of the perils of prioritizing profit over ethics. The Australian lender's agreement to pay out A$130 million ($81.84 million) to settle a class action lawsuit, filed by Maurice Blackburn in 2020, alleges that Westpac and St George Finance allowed car dealers to hike interest rates on car loans to earn these commissions between March 1, 2013, and October 31, 2018. This settlement, subject to court approval, marks the end of the last litigation related to the Royal Commission for Westpac, but it also raises critical questions about the broader industry trends in auto finance and commission practices.

The settlement is a significant financial blow to Westpac, but it is also a wake-up call for the industry. The bank had already set aside funds to cover this potential liability, indicating a proactive approach to financial management. However, the cessation of new lending through its auto finance business in 2022 suggests a strategic shift away from a segment that has been associated with legal and reputational risks. This move aligns with the bank's commitment to risk management and regulatory compliance, allowing it to focus on other areas of its financial services portfolio.

The broader industry trends in auto finance and commission practices are equally concerning. Both Westpac and ANZ, another major lender, have faced legal actions due to their practices of paying commissions to auto dealers, which allegedly led to higher interest rates for consumers. These settlements indicate a shift in the industry towards greater scrutiny and regulation of commission structures in auto finance. Westpac, for instance, has not paid such flex commissions since 2018 and ceased providing new lending through its auto finance business in 2022. This suggests that the industry is moving away from practices that could be perceived as harmful to consumers and towards more transparent and fair commission structures.



The settlements also highlight the financial risks associated with such practices. Both Westpac and ANZ have had to pay substantial amounts to resolve these lawsuits, which could impact their financial performance and shareholder value. The settlements were largely provided for in their financial statements, indicating that the banks had anticipated these costs and had set aside funds to cover them. This proactive approach to financial management is crucial for maintaining investor confidence and ensuring the stability of the financial institution.

In conclusion, the settlements reached by Westpac and ANZ in their respective class action lawsuits over auto finance commissions reflect broader industry trends towards greater transparency and fairness in commission practices. These settlements also underscore the financial risks associated with such practices and the importance of proactive financial management in mitigating these risks. The $81 million settlement is a stark reminder of the perils of prioritizing profit over ethics, and it serves as a wake-up call for the industry to adopt more transparent and fair commission structures.