CONVENTION TOPIC: ASIC’S SECOND CONSULTATION PAPER ON PROHIBITION OF FLEX-COMMISSIONS

As advised to Dealers by acting CEO, David Blackhall, in his Dealer Bulletin of 16 June 2016 and Newsletter, ASIC released its second consultation paper on 3 June 2016. In addition, ASIC raised three questions following AADA’s submission to the initial consultation paper.

AADA is working closely with ASIC at finding ways to address the regulator’s concerns about consumer harm and unfair conduct in the provision of motor vehicle finance by Dealers as agents for the financiers.

For your information, a summary of ASIC’s position is again reproduced below:

  • ASIC maintains its view that flex-commissions create an inherent risk of unfair conduct, with a disproportional impact on vulnerable (but not credit impaired) consumers.
  • ASIC considers that even a small gap between the base rate and the maximum interest rate causes financial harm.
  • ASIC considers that a prohibition on flex-commissions could commence on 1 February 2018, allowing a transition period of 18 months.\
  • In the transition period, ASIC considers the interest rate should be set at no more than 150 basis points above the base rate commencing 1 November 2016.
  • On origination fees, ASIC considers that the risk of origination fees being unfairly increased is real and substantial. ASIC does not accept that disclosure would address its concerns about unfair conduct.
  • ASIC is preparing to address its concerns through a ‘legislative instrument’ under the National Consumer Credit Protection Act 2009 (NCCP Act). It should be noted that these changes are subject to Parliamentary oversight.
  • ASIC has acknowledged that its proposed changes will not affect novated leases and other commercial lending arrangements.

AADA has been actively addressing these issues on your behalf via direct meetings and discussions with ASIC, and with the expert participation of and guidance from senior finance executives within our membership. We have developed a sophisticated model that shows the financial impact of ASIC’s proposal on the franchised Dealer network.

This is without doubt the single most significant regulatory challenge we face, but Dealers should rest assured that this matter is the highest priority on the AADA team policy agenda.
If you have specific concerns, please do not hesitate to contact AADA CEO or any member of the AADA team. CEO Newsletters and Dealer Bulletins can be accessed on the AADA website,
www.aada.asn.au.

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