URGENT DEALER BULLETIN – Flex-Commissions

ASIC RELEASES PROPOSALS ON FLEX-COMMISSIONS

This afternoon ASIC released its proposals on flex-commissions paid to Dealers by financiers. The ASIC documents can be viewed here.

AADA is examining the documents and will issue a detailed report on the implications for members early next week. A broad summary of the proposals include:

  • A total prohibition on the payment of flex-commissions above base rates set by financiers based on customer risk profiles. The National Credit Act will be modified through a legislative instrument to prohibit flex-commission arrangements so the amount paid in commissions is not linked to the interest rate and the lender has responsibility for determining the interest rate.
  • The prohibition will apply to all credit contracts and consumer leases regulated by the National Credit Act.
  • The base rate can be discounted down by a maximum of 200 basis points and the commission paid may be correspondingly reduced.
  • Volume bonuses will continue to be allowable.
  • Origination fees will be allowable provided they are “realistic”.
  • It appears the proposals will also apply to finance brokers.
  • ASIC acknowledges that lenders and dealers would need to negotiate new commission models and the legislative instrument allows a transition period of 18 months and sets a commencement date for the prohibition of 1 September 2018.
  • ASIC estimates the benefits to consumers will be significant.
  • Lenders will be required to report data to ASIC to identify any avoidance practices.

AADA has been working very closely with ASIC on a range of issues including flex-commissions and add-on insurance products. We will continue to do so on your behalf through to the transition period.

There are a lot of unanswered questions and over the weekend AADA will closely examine the ASIC documents to get a better understanding of its effect on your businesses and whether there are any unintended consequences.

I am sure you have many questions but I ask that you read the documents and give us time to provide a detailed summary.

AADA has come a long way in working with and developing a relationship with ASIC and will continue to do so particularly in addressing the “outliers”.

 

Yours faithfully

Signature

David Blackhall
Chief Executive Officer
Australian Automotive Dealer Association Ltd

For more information, contact:

David Blackhall
Chief Executive Officer
E: dblackhall@aada.asn.au
M: +61 413 007 833

Terry Keating
Chairman
E: terry.keating@jtfossey.com.au
M: +61 418 668 277

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