Dear Dealer Principals and Colleagues
ASIC released its initial consultation paper on 4 December 2015 and AADA lodged a detailed response to ASIC on 11 March 2016. It included detailed modelling of the financial impact on the Dealer network and rebutted the prohibition on 12 separate grounds. In response ASIC agreed to meet with AADA in Sydney on 8 June 2016 to discuss the modelling and other issues raised by AADA.
On Friday 3 June 2016 ASIC released its 2nd consultation paper seeking further views of stakeholders on introducing a prohibition on flex-commission arrangements. Responses are required by Monday 27 June 2016. AADA has requested an extension of time to carry out further modelling and address the additional issues raised.
A summary of the major issues raised by ASIC:
- ASIC maintains its view that flex-commissions create an inherent risk of unfair conduct with a disproportional impact on vulnerable (but not credit impaired) consumers
- ASIC considers that even a small gap between the base rate and the maximum interest rate causes financial harm
- ASIC considers that a prohibition on flex-commissions could commence on 1 February 2018 allowing a transition period of 18 months
- In the transition period ASIC considers the interest rate should be set at no more than 150 basis points above the base rate commencing 1 November 2016
- On origination fees ASIC considers that the risk of origination fees being unfairly increased is real and substantial. ASIC does not accept that disclosure would address its concerns about unfair conduct
- ASIC is preparing to address its concerns through a “legislative instrument” under the National Consumer Credit Protection Act 2009 (NCCP Act). It should be noted that these changes are subject to Parliamentary oversight
- ASIC has acknowledged that its proposed changes will not affect novated leases and other commercial lending arrangements
AADA has been actively addressing these issues on your behalf via direct meetings and discussions with ASIC and with the expert participation of and guidance from senior finance executives within our membership. We are also working closely with FCAI.
We anticipate further direct discussions with the regulators as the matter progresses. We have also requested an extension to the due date for responses to the second consultation paper to ensure our submission is of the highest possible quality.
Members should be rest assured that this critical policy matter is receiving the highest possible attention from the AADA team. If, however, you or your team members have specific questions or concerns please do not hesitate to contact either one of us directly at any time.
For more information, contact:
David Blackhall, Acting CEO +61 413 007 833
Terry Keating, Chairman +61 418 668 277