A major court action has been lodged against RAMS Financial Group Pty Ltd (RAMS) by former franchisees who allege that the group unjustly terminated their contracts.

RAMS is a Westpac subsidiary that sees franchisees sell Westpac home loan products (following its pivot in business model in 2020).

The class action - filed by Morris Mennilli Lawyers on behalf of certain former RAMS franchisees - has come about after RAMS allegedly terminated the authorised credit representative agreements and franchise agreements held by around 20 franchisees last year. This is believed to be about a third of the entire network size.

The Westpac-owned mortgage brand has confirmed to The Adviser it had “exited a number of franchisees that did not meet required standards under their contractual arrangements” following a review by Westpac and RAMS Finance Group.

The lender confirmed that “disputes” had been raised by franchisees in relation to this action.

What are the arguments?

RAMS contends that the terminations were justified because it had identified suspected and alleged “anomalies” in documents provided by loan applicants to the franchisees in support of applications for RAMS branded home loans.

However, those bringing the class action contend that RAMS had breached its contractual and statutory obligations of good faith because it had terminated their franchise agreements without proper cause. They are also challenging the brand's withholding of trail commission.

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They argue that the “anomalies” cited are either without basis (and their detection arises from flawed investigations), or, if the “anomalies” can be substantiated, they occurred because RAMS had failed to implement or comply with its business systems for responsible lending (rather than by the fault of the franchisees).

Indeed, the class action documents show that those who were being reviewed were not informed that the reviews were being conducted.

But the documents show that the group reviews resulted in concerns from the company relating to “purported anomalies relating to the authenticity of documents submitted by staff” and/or instances of possible fraud by the applicants” for certain products.

Other concerns raised included alleged “failures by the franchisees to put in place adequate arrangements, or comply with such arrangements, in order to meet their obligations as an authorised credit representative”; and concerns that the risks of the franchisee in continuing their business “could no longer be sufficiently mitigated”.

The documents show that the reviews also raised some concerns in relation to “high rates of suspected false company tax returns and financials, misrepresented savings, undisclosed liabilities and savings that could not be validated”; and multiple occurrences of purportedly “suspected false company tax returns and financials, suspected false personal tax returns and savings and incomes that could not be validated”.

As such, RAMS elected to exercise its discretion to revoke certain franchisee agreements.

Those involved in the class action allege that RAMS never told the franchisees that it was conducting reviews, nor what the resulting suspected "anomalies” were and were never provided with an opportunity to address the suspected “anomalies”.

They also claim that some of the identified issues may have arisen due to issues with RAMS policy and processes, rather than those of the franchisee.

In a statement provided to The Adviser, Westpac said it “takes its obligations seriously and will be defending the claim”.

The total damages sought by the claim are unspecified.

Westpac looking to sell RAMS

The class action is one of several issues Westpac is facing relating to the RAMS brand.

In its interim financial results, Westpac noted that it had “enagement with various regulators in relation to RAMS”, including an enforcement investigations by ASIC into RAMS Finance Group Pty Limited and RAMS authorised credit represenatives (including RAMS franchisees in connection with the provision of home loan products from 1 January 2019 to 1 September 2023).

The current focus on ASIC’s investigation is on RAMS’s general conduct obligations, prohibitions on conducting business with unlicensed persons, and giving misleading information.

Other regulatory investgiations reportedly include “enquiries by ASIC into principal, interest and fee repayment calculations in relation to certain business lending products”.

Westpac told The Adviser: “Westpac self-reported to ASIC after identifying issues in some home loan applications through its risk review processes.

“We have taken a range of actions to strengthen these processes and have exited franchisees where necessary in accordance with their contractual arrangements.

“We will continue to cooperate with regulators on this matter.”

Westpac Group has previously said that it is “considering strategic options in relation to the RAMS business”.