Westpac says it will defend a class action that alleges the bank and St George Finance colluded with car dealers to charge customers inflated interest on loans.
Law firm Maurice Blackburn has not revealed how much money is being sought, but said it has filed papers in the Victorian Supreme Court that claim the banks allowed car dealers to hike the interest rates on car loans so they could earn hefty commissions.
Customers were not told of the arrangement, and were led to believe the rates were set only by criteria such as credit risk, the law firm said.
The class action covers loans made from March 1, 2013, to October 31, 2018.
Maurice Blackburn's head of class actions Andrew Watson said the firm would seek to prove the banks did not comply with consumer credit protection laws, and caused substantial losses for consumers.
He believed hundreds of thousands of motorists were affected, and invited them to join the class action.
One applicant, Alannah Fox, was charged 12.99 per cent on a loan of about $47,323. She paid $24,864 in interest as part of buying a 2015 Hyundai ix35.
She said she was only told the interest rate after she agreed to buy the car.
"We bargained hard on the initial price, but I believe they knew what they were doing and slugged me with the high interest rate to compensate," she said.
Westpac, which owns St George, confirmed it had been served the class action and noted similar claims may be made.