ASIC has formally banned flex commissions in the car finance market through the ASIC Credit (Flexible Credit Cost Arrangements) Instrument 2017/780 (Instrument). Flex commissions are paid by lenders to car finance brokers, typically car dealers, and allow dealers to set the interest rate on a car loan. Flex commissions generally operate so that dealers earn larger commissions where they set higher interest rates. ASIC recently led a public consultation on the effects of flex commissions on consumers, which found that they generally lead to consumers paying excessive interest rates on their car loans. Consequently, ASIC have decided to ban flex commissions from 1 November 2018.
The Instrument means that the lender, not the broker or dealer, will be responsible for determining the interest rate that applies to a particular loan. Dealers will be prohibited from suggesting a different rate that earns them a greater commission and have limited capacity to discount the interest rate and receive lower commissions.
Criminal offences and civil penalties attach to breaches of these prohibitions . ASIC proposes to monitor the effectiveness of the Instrument by requiring holders of an Australian credit licence to provide ASIC with information about the annual percentage rate, credit fees and charges under credit contracts before and after commencement of the Instrument.