A deferred sales model (DSM) with a long deferral period is a disproportionate regulatory response than that which could be achieved through greater consumer education and simpler transparent disclosure with effective communication. A DSM should also contain a degree of flexibility to allow a returning consumer or a consumer with a high degree of financial literacy to opt-out or waive the deferral period. Most consumers do not want a drawn out purchasing experience and AADA’s preferred option is for a deferral period of two clear days with an opt-out after commencement of the deferral period. The deferral period should commence when a consumer receives a ‘consumer communication’ with mandated content.
In 2016 ASIC released three reports into the design, distribution and sale of add-on insurance products through car dealerships. The reports found systematic problems with the sale of add-on products through this distribution channel and ASIC’s reform proposal is for a deferred sales model to insert a pause in the sales process.
The motor vehicle purchase journey involving finance can commence as early as five weeks before a final decision is made and most consumers do not want a drawn-out purchasing experience particularly if they have set aside time (typically on a weekend) to finalise the sales transaction. To minimise disruption to the sales process, the deferral period should commence at the earliest point in time, preferably when the ‘consumer communication’ is received; be of a short duration; and cease at the earliest of the end of the ‘deferral period’ or delivery of the vehicle.
The commencement trigger for the deferral period could be a point in time or event that can be easily documented and readily verified by all relevant parties (consumer, dealer and insurer) e.g. electronic acknowledgement or signature, SMS acknowledge… AADA’s preference is for a deferral period of two clear days with the ability to opt-out or waive the deferral. If a consumer cannot read a ‘consumer communication’ within a clear 24-hour period then there is a diminishing likelihood of it being read and/or understood in two days or greater. A returning or ‘informed consumer’ should be given the opportunity to waive the deferral period.
- A deferred sales model should contain a degree of flexibility to allow a consumer to waive the deferral period.
- The deferral period should commence when the consumer communication is received and cease at the earliest of the delivery of the vehicle or the end of the deferral duration.
- To minimise disruption to the sales process, a short deferral period of two clear days is preferable.
AADA to participate in second round consultations in February 2018. ASIC planning to release final paper on regulations in March 2018.