Car buyers risk being exposed to financial harm when they sign up for loans offered by brokers and dealers, the market regulator says.
The Australian Securities and Investments Commission has published a 37-page report on the motor vehicle finance sector after noticing a rise in complaints.
It found shortcomings in the oversight of distributors, like brokers and car dealers selling loans, and has put the industry on notice to do better.
"This review lays bare the potential risks when lenders fail to effectively monitor third-party distributors, and how consumers can pay the price," commissioner Alan Kirkland said on Wednesday.
"Responsibility for consumer outcomes cannot be outsourced."
The report cites examples of harm, including big variations in car loan costs and lenders repossessing cars after declining hardship assistance requests, leaving consumers with huge residual debts after sale.
In one case, Sebastian took out a $15,678 car loan to buy a 2105 Holden Cruze, but eight months later, the lender repossessed and sold the car.
Sebastian's loan balance before the car was sold was $18,237, but afterwards he owed $20,714 - a whopping 114 per cent of his loan at the time of repossession.
Car loans can cost buyers between 10 and 22 per cent, the report found.
Loans usually incur two establishment fees - a lender establishment fee, ranging from $299 to $995, and a distributor establishment fee, ranging from a flat fee of $912 up to $2,500.
However, one lender - who charged the highest total fees across all loans - also imposed a third fee, which led to one customer paying over $9,000 in fees on a $49,162 car loan, the report found.
This included more than $7,800 to the lender and $1,320 to the broker, or around 18 per cent of the total loan amount.
ASIC also noticed that when consumers fell into hardship, some received inconsistent support, while many of those whose cars were repossessed and sold were left with significant debt, as in the case of Sebastian.
"Consumers shouldn't lose their car and still be stuck with the bulk of their debt," Mr Kirkland said.
But according to a sample of 250 loans reviewed by the report authors, 90 per cent of consumers still owe more than half their total loan amount, and in some cases more than 100 per cent of the loan.
ASIC studied data from over 350,000 loans across eight car finance providers, including some of Australia's largest, set up March 2023 and 2025.
The Australian Finance Industry Association is examining the findings.
"Customers must be treated fairly and respectfully, lenders must meet their legal obligations," its head Diane Tate said.
"The industry must continue to lift standards in line with evolving customer needs and the changing conditions in the transport market and the broader economy."