ASIC puts car dealers on notice for commissions
The regulator is looking to address car dealers charging high interest rates for car finance.
Flex commissions have been scrutinised by the Australian Securities and Investments Commission (ASIC) due to the "poor outcomes" for consumers. ASIC has prohibited the commissions, which allow car dealers to charge a higher interest rate than the lowest available rate (700+ basis points or higher) on car loans.
Flex commissions are common in car finance, despite operating in a way that is unfair under the National Consumer Credit Protection Act 2009, according to ASIC.
"Most consumers would be surprised to learn that when you are buying a car on finance, the car dealer can, for example, decide whether you will be charged an interest rate of 7% or one of 14% - regardless of your credit history. Flex commissions do not operate in a fair and transparent way, and ASIC's action will ensure that consumers are not charged excessive interest rates," ASIC deputy chair Peter Kell said.
ASIC conducted two rounds of written consultations with key stakeholders which resulted in the prohibition of flex commissions. Other types of commission will still be permitted.
However, the regulator believes this prohibition will reduce interest rates.
"We are confident this prohibition will benefit consumers by removing incentives that increase the interest rates they are charged. We consider that average interest rates on car loans will fall as a result of more efficient pricing models and lower losses through defaults. We expect lenders will work with car dealers in moving to fairer and more sustainable models," Kell said.
Finance offered by dealerships isn't your only option - compare a range of low interest car loans here.
- New study finds real difference between dealership finance and bank loans
- Money Hack: How to get on-road costs included in your car loan
- Is it time to think about buying an electric car?
- Money Hack: Offset your car’s carbon emissions for up to 7 years
- Car finance expert spills the best tips for EOFY sales