3rd March, 2017 ยท bulletin

Flex-Commissions

2 minutes to read

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

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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