MPA hears from the FBAA's Peter White on what ASIC's banning of flex commissions in the car finance market means for brokers.
ASIC announced last week that it will be banning flex commissions in the car finance market. MPA asks the FBAA's Peter White on what the decision means for brokers.
MPA: Is the banning of flex commissions a good result for brokers?
Peter White: The banning of flex commissions is a great result for brokers because it will ensure there is a fair and even playing field between car dealers and brokers. It will also result in transactional transparency of commissions meaning borrowers are more informed as well. We must have the right conduct to achieve the right outcomes and truth comes through transparency.
It is important to note that flex isn't entirely being banned. However, dealers will be prohibited from being able to increase interest rates with the aim of receiving a higher commission. Car dealers will still get their floor plan offset, but once the new legislation comes into being in 18 months time commissions will be built into the interest rate as set by the lender.
MPA: You've long called for point-of-sale exemptions to be banned: do you consider this mission accomplished?
PW: I have long called for point-of-sale exemptions to be removed, but it is a matter for the minister which is next on my agenda. I believe we will be successful and am already drafting our proposal on this. Discussions late last year suggest that the regulator would also see this achievement as being positive.
MPA: Is the FBAA's support for ASIC changing commission arrangements a dangerous move, given mortgage brokers' remuneration is under review?
PW: No, as commissions in the motor sector are not being banned. Car dealers will still get commissions, but going forward it will be in a similar manner as home loan commissions (i.e. the commission is built in the interest rate as set by the lender) and the car dealer will not be able increase the interest rate to receive more commissions.
MPA: Do you approve of ASIC allowing dealers to offer a discount on the interest rate, and thus lower commissions?
PW: I approve of ASIC allowing dealers to offer a discount on the interest rate, and it was the FBAA who pointed out to the regulator that this should continue, contrary to the initial draft wording. The motor industry has always had this ability and to ensure best consumer outcomes are achieved, this needs to continue.
(Note this new regulation starts in 18 months.)
MPA: How can brokers use this rule change to diversify their businesses?
PW: Brokers will now be able to compete on a much closer level with motor finance. Brokers will have a much better opportunity to market this style of business to their clients, knowing their ability to secure the customers business in this area is much greater than before.
MPA: Is the banning of flex commissions a good result for brokers?
Peter White: The banning of flex commissions is a great result for brokers because it will ensure there is a fair and even playing field between car dealers and brokers. It will also result in transactional transparency of commissions meaning borrowers are more informed as well. We must have the right conduct to achieve the right outcomes and truth comes through transparency.
It is important to note that flex isn't entirely being banned. However, dealers will be prohibited from being able to increase interest rates with the aim of receiving a higher commission. Car dealers will still get their floor plan offset, but once the new legislation comes into being in 18 months time commissions will be built into the interest rate as set by the lender.
MPA: You've long called for point-of-sale exemptions to be banned: do you consider this mission accomplished?
PW: I have long called for point-of-sale exemptions to be removed, but it is a matter for the minister which is next on my agenda. I believe we will be successful and am already drafting our proposal on this. Discussions late last year suggest that the regulator would also see this achievement as being positive.
MPA: Is the FBAA's support for ASIC changing commission arrangements a dangerous move, given mortgage brokers' remuneration is under review?
PW: No, as commissions in the motor sector are not being banned. Car dealers will still get commissions, but going forward it will be in a similar manner as home loan commissions (i.e. the commission is built in the interest rate as set by the lender) and the car dealer will not be able increase the interest rate to receive more commissions.
MPA: Do you approve of ASIC allowing dealers to offer a discount on the interest rate, and thus lower commissions?
PW: I approve of ASIC allowing dealers to offer a discount on the interest rate, and it was the FBAA who pointed out to the regulator that this should continue, contrary to the initial draft wording. The motor industry has always had this ability and to ensure best consumer outcomes are achieved, this needs to continue.
(Note this new regulation starts in 18 months.)
MPA: How can brokers use this rule change to diversify their businesses?
PW: Brokers will now be able to compete on a much closer level with motor finance. Brokers will have a much better opportunity to market this style of business to their clients, knowing their ability to secure the customers business in this area is much greater than before.
