AADA will work with the Federal Government to ensure the Government’s decision to abolish the point of sale exemption for retail Dealers providing car finance does not hurt the industry.
The decision, based on a recommendation in the Banking Royal Commission, caught the new car industry by surprise when it was announced in February.
Amongst 17 recommendations in the report was that the Government remove the exemption of retail Dealers from the operation of the National Consumer Credit Protection Act (NCCP Act). The Government accepted the recommendation.
Larger dealer groups already hold credit licences, but only a few dozen Dealers are understood to hold credit licences.
In its response to the report, the Government said it recognised the impact the change would have on many businesses.
It said it “will carefully consider how these reforms are implemented to ensure balance is achieved between consumer protection and access to products and services.”
AADA CEO, David Blackhall, said the point of sale exemption was only briefly mentioned in the Royal Commission’s interim report, so to find its abolition was now Government policy was a surprise.
“It is unclear what this policy will mean for the provision of finance at dealerships. It is not certain how many new car Dealers already have credit licences, but we do know that many mid-to-small and regional dealerships do not,” Mr Blackhall said.
“I appreciate the Government’s commitment to carefully consider how this reform is implemented. The AADA will make ourselves available to work with the Government to ascertain the impact this will have on Dealers and to ensure the transition is as smooth as possible.
“Leadership in this area is with the finance providers and we look forward to working with them to ensure that financiers, Dealers and consumers are not disadvantaged during this transition.”
Mr Blackhall said it was unclear why the exemption needed to go. Obtaining finance from a dealership is a cost-effective, convenient solution for many consumers and the Royal Commission, by its own admission, repeatedly said that delinquencies in the car finance market are very low.
One factor likely to help Dealers is that the exemption also applies to other National retail chains and other stores that offer credit to assist consumers with big-ticket items such as white goods and furniture.
As with Dealers, shop assistants can currently offer loans or credit cards and help customers fill out the forms without holding a credit licence.
Dealers operate as vendor introducers who facilitate car finance and make it convenient for customers to obtain. Dealers are not the providers of the finance and play no part in approving or rejecting finance applications.
The Government also agreed to changes in the sale of add-on insurance products by Dealers, including working towards a deferred sales model and the imposition of a cap on the amount of commission paid to vehicle Dealers.
“The concept of a deferred sales model is already under consideration by ASIC. We will be urging Treasury to adopt a model that defers the sale for around three to four days and allows informed consumers a waiver,” Mr Blackhall said.
“Allowing ASIC to impose a cap on add-on insurance commissions will only formalise a practice already being employed by the main insurance companies.”
There will also be a review on commissions for general insurance and consumer credit insurance, to test whether the exemption to the ban on conflicted remuneration remains justified, which the AADA looks forward to participating in.