New rules expected to deliver cheaper car loan rates

Car buyers will no longer have to worry about falling victim to ‘flex commissions’ when they take out dealer finance.

ASIC, the financial services regulator, has now banned flex commissions, as of 1 November.

Under the previous system, car dealers could charge different customers different interest rates – as long as they stuck within minimum and maximum limits set by the lender. Dealers were incentivised to charge higher interest rates, because they would then earn higher commissions.

ASIC was concerned that vulnerable consumers, with less financial knowledge, were being charged higher interest rates than more sophisticated consumers.

The regulator has forecast that the ban on flex commissions will “improve lending practices” and “deliver significant savings” to consumers.

Consumers will now be offered interest rates based on their financial position and credit score, rather than their ability to negotiate, according to ASIC.

Also, consumers are more likely to be offered interest rates that are competitive compared to what other lenders are providing.

As of 1 November, the lender – not the car dealer – is responsible for setting the interest rate.

Car dealers can no longer bump up interest rates to qualify for higher commissions, although they have some opportunity to discount the interest rate.

ASIC said it will monitor lenders to ensure they follow the new rules. Lenders who do not comply could be penalised up to $420,000 per contravention.

Commissioner Danielle Press said lenders have had ample time to prepare for the ban on flex commissions, and that ASIC would insist on full compliance.

“The ban on flex commissions will deliver better outcomes for consumers across the entire car finance industry,” she said.

“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 vulnerable consumers less able to protect their interests.”

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