Flex-commissions likely to be banned by 2017: FBAA

by Julia Corderoy18 Aug 2016
Commission structures in the car finance industry are facing an overhaul, according to the Finance Brokers Association of Australia (FBAA), with controversial flex-commissions likely to be prohibited by the end of 2017.

Meeting with ASIC to discuss the current review into motor dealer flex commissions, the FBAA recommended that the regulator stop the practice of flex commissions after concerns that consumers are being charged excessively high interest rates due to steep loan commissions being added into borrowings.

“The FBAA and ASIC have been in continual contact on motor finance issues since the point of sale (POS) exemptions were first brought in from 2010, and we have held National Dealer Roadshows on this and other matters including the FBAA’s multiple submissions to ASIC on the controversial use of flex commissions,” the FBAA’s Peter White said.
“Following on from our recommendations to the regulator, a likely outcome is car dealers and financiers may be able to discount the interest rate but must also reduce their commissions.” 

According to White, flex commissions will likely remain in the interim as any ASIC ruling will need to be passed by Parliament. However, by the end of 2017 the ability to increase interest rates by adding a higher commission structure will most likely be prohibited.

“I also made mention of the FBAA’s long-held firm position on the removal of POS exemptions to motor dealers and although it appears that the regulator may support such views, this is not an ASIC matter and we will continue this ongoing conversation with government.”
White also revealed that further commission reviews are being held into the related consumer credit insurance sector.

In July, the Mortgage and Finance Association of Australia (MFAA) lodged a follow-up submission to ASIC, also arguing flex-commissions should be abolished, in response to membership feedback.