Volkswagen has been hit with a double whammy in one day — fined $125 million for misleading consumers about its diesel emissions and hit with allegations that it broke responsible lending laws.
Volkswagen AG, the German parent company, has been slugged with the highest penalty order ever made by the Federal Court for contravening consumer law.
The car manufacturer admitted it did not disclose to the Australian government its cars had two-mode software that hid the true nature of nitrogen oxide (NOx) emissions.
When mode one was switched on, it limited the amount of NOx that was emitted.
Cars were tested for emissions in mode one.
But when cars were put on the road, mode two was switched on, producing higher NOx emissions.
Volkswagen engineers designed the two-mode software in 2006 and it was kept secret until discovered in 2015.
The Federal Court found Volkswagen should have disclosed the information to the government when it sought approval to supply and import more than 57,000 cars into Australia between 2011 and 2015.
Australian Competition and Consumer Commission (ACCC) chairman Rod Sims said Volkswagen’s conduct was “blatant and deliberate”.
“This penalty reflects a trend of ever higher penalties for breaches of Australian consumer law,” he said.
The ACCC had previously reached a settlement that would have seen Volkswagen AG pay $75 million, but changed course, instead referring the matter to the Federal Court.
In a statement, Volkswagen AG said it “had agreed in principle to the smaller sum and is now reviewing the court’s reasons for deviating from that amount”.
It says it will “determine in coming weeks if it will appeal against the decision.”
The car manufacturer said most cars have now had an update to the engine control software under an ongoing voluntary recall.
All new motor vehicles supplied or imported into Australia must comply with Australian standards for exhaust emissions.
Two hits in one day
Volkswagen’s Australian financial arm, Volkswagen Financial Services, is being sued by the Australian Securities and Investments Commission (ASIC) for allegedly breaking responsible lending laws.
ASIC has accused Volkswagen Financial Services of breaking consumer credit laws in 49,380 car loan contracts between 2013 and 2016.
It alleges Volkswagen Financial Services did not carry out proper checks to make sure customers could repay the loans.
The Federal Court will examine whether Volkswagen contravened the National Credit Act provisions. The maximum penalty for each contravention is $1.8 million.
“The responsible lending obligations in the National Credit Act are intended to prevent consumers entering unsuitable credit contracts,” ASIC commissioner Sean Hughes said.
“It is entirely the responsibility of credit providers to properly assess whether the consumer has the capacity to service the loan without incurring substantial hardship.”
In a statement, Volkswagen Financial Services Australia said it took its compliance obligations seriously and it has been cooperating with ASIC on matters arising from 2013 to 2016.