Ban on Flex.

Prepared by Julia Winzar

The ban on flex commissions paid to car finance brokers and car dealers came into effect on the 1st of November.

Under a flex commission arrangement the car finance broker had discretion to select an interest rate for a consumer from a range of rates offered by the lender. The higher the interest rate applied, the higher the upfront commission paid to the car finance broker, creating an incentive for the broker to negotiate a higher interest rate for its clients.

The ban on flex commissions seeks to bring the cost of credit for consumers back into alignment with the consumer’s credit history and the actual risk borne by the lender, rather than being based on the ability of the consumer to negotiate their interests.

Some lenders have taken steps to remove flex commissions well in advance of the formal commencement of the ban, whilst others have left this a little closer the deadline. It is important that lenders have properly considered the commission structures used to replace flex commissions as ASIC will be monitoring the activities of lenders in this space to ensure that lenders are not only complying with the letter of the law, but also the intent.