Flex commissions are paid by lenders to car finance brokers (typically car dealers), allowing the dealers to set the interest rate on the car loan. The higher the interest rate, the larger the commission earnt by the dealer.
ASIC is banning these commissions because it has found that they lead to consumers paying excessive interest rates on their car loans. The ban comes after ASIC led a public consultation on banning these commissions.
“We found that flex commissions resulted in consumers paying very high interest rates on their car loans. We were particularly concerned about the impact on less financially experienced consumers,” ASIC deputy chair Peter Kell said.
Kell thanked those who had provided feedback to ASIC’s consultation: “The feedback we received from stakeholders provided us with helpful insights, and we thank all stakeholders for their cooperation.”
The legislative instrument operates so that:
• The lender not the car dealer has responsibility for determining the interest rate that applies to a particular loan. The car dealer cannot suggest a different rate that earns them more commissions.
• Car dealers will have a limited capacity to discount the interest rate and receive lower commissions, leading to lower costs for credit.