Yesterday, ASIC issued the final Legislative Instrument banning flex commission in its present form.
The new regulations have an implementation date of November 1, 2018. This provides financiers and dealers with around 14 months to make changes to systems and processes to ensure compliance with the new regulatory régime.
Key points for you to note:
- Well run new car franchises will continue to earn important income from the sale of financial products to customers
- The changes will have less impact on overall finance income than the initial discussion drafts indicated, specifically:
- Commissions will be allowable on contracts written at a range of base rates available to consumers as nominated by the lender and agreed with the dealer in advance
- Dealers can legally earn commissions on contracts written with ‘negative flex’ discounts of up to 200 bps (2%) below the lenders’ nominated rates
- If a lender agrees to write a contact at a rate that is more than 200bps (2%) below the nominated base, the dealer can legally earn commission at the rate that would have applied if the discount was 200bps (2%)
- This is a significant improvement compared with the original proposal which would have banned all commissions above the 200bps discount
- The new regulations will allow dealers to continue to receive origination fees and other forms of compensation which do not directly impact the effective APR paid by consumers
- Under the new rules, lenders are required to supervise dealers more closely and to ensure that their product distribution practices are compliant with the Act
We are continuing to work with senior executives at ASIC to ensure we can provide AADA members with the best guidance and advice during the transitional period leading up to implementation in November 2018. We will of course issue you with updates as needed during this time.
In the meantime, if you have questions please a call any of the team members listed below.