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”.
Chief Executive Officer
Australian Automotive Dealer Association Ltd