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‘Flex commissions will go next year’ says FBAA

by Reporter10 minute read
The Adviser

Motor dealers will likely be prohibited from increasing interest rates and commissions on car finance by “the end of 2017”, the Finance Brokers Association of Australia (FBAA) has said.

FBAA chief executive Peter White met with the Australian Securities and Investments Commission (ASIC) earlier this month to discuss the current review into motor dealer flex commissions, which was launched following concerns that consumers are being charged excessively high interest rates due to steep loan commissions being added to borrowings.

According to the FBAA’s chief executive, it is “without issue that ASIC wants flex commissions gone from the industry”.

Speaking to The Adviser, Mr White said: “Flex commissions will go, so the ability to dial up an interest rate and add extra commission to it will not be allowed. It will be regulated by law; it will be illegal.”


However, he added that the ability to reduce the interest rate by reducing commissions must be allowed.

Mr White said: “We have recommended to ASIC that reducing commissions must be allowed, because that enables lenders to go out with promotional offers and it creates a positive consumer outcome, which is what this is all revolving around.

“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.” 

He acknowledged that although the move could be unpopular with those in the motoring industry, as “they aren’t going to make as much money out of the finance as they used to”, it would create “a much more stable retail environment for motor vehicles, and a lot more transparency to buying a car.”

Although ASIC has yet to make a recommendation to parliament, the FBAA says it expects that a revised finance commission structure for dealers will commence next year.

Touching on ASIC’s inquiry into remuneration and ownership structures in the Australian mortgage industry, Mr White told The Adviser that the final report will be submitted by the end of December. However, he says that the industry should “not be concerned about it”.

He said: “It’s important to note that [ASIC is] purely writing a report, they're not making any conclusions or determinations, they're just reporting on what the data says.

“That's why it’s so important for industry to be so closely engaged and transparent with this, and not be concerned about it, because [ASIC isn’t] going to government saying you should do this, this, or this, they're just presenting data and then the ministers next year will make some decisions on that data.” 

[Related: ASIC review: what brokers need to know]