New ASIC rules to help customers save on car finance
Toyota also announces new personalised rates in line with regulations.
The car finance industry is set to change this week with the introduction of mandatory ASIC regulations to ban so-called “flex commissions” and protect customers from higher interest rates.
An arrangement between lenders and dealers, flex commissions allow dealers to set a customer’s interest rate on a case-by-case basis, far above the base rate set by the lender. The margin between rates forms the commission received by dealers, meaning they are incentivised to raise the rate, often without the customer knowing it has happened.
A year in the making
While ASIC announced the ban on flex commissions in September last year, it will not take effect until 1 November 2018 and many lenders and dealers have continued the practice in the meantime. An ASIC study found that in one month, approximately 15% of customers were given an interest rate that was 7% higher than the base rate offered by the lender.
Under the new regulations, lenders will be responsible for the interest rate and dealers will no longer be able to charge customers more than the rate set by the lender. Rates will mostly be based on a customer’s credit score and therefore more transparent.
John Chandler, president and chief executive officer of Toyota Financial Services, believes the ASIC regulations mean providers can better cater to the individual needs of customers. “This legislation represents the next step in the evolution of purchasing a vehicle, which we regard as a welcome change. We would like to reach the point where the dealership is seen as the best place to get car finance.”
Toyota changes it up
In anticipation of the new rules, Toyota Financial Services will introduce the Toyota Personalised Rate, which factors in 14 unique criteria, along with a person's credit score, to determine an interest rate that is tailored to the individual Toyota customer.
“We think the personalised rate approach will be more accurate and will provide our customers with a fairer interest rate as it is based on their individual circumstances, rather than a rate card, which places customers in broad interest rate bands,” says Chandler. “Consumers will get a rate that reflects their individual circumstances and they will also have more transparency of their rate within the car buying process.”