ASIC has registered the ASIC Credit (Flexible Credit Cost Arrangements) Instrument 2017/780 which inserts new sections 53A and 53B into Chapter 2 of the National Consumer Credit Protection Act 2009 to regulate flex commissions for consumer finance including consumer leases.
‘Flex commissions’ refers to an arrangement whereby an intermediary (generally a car dealer) who sells a loan to a consumer earns a larger commission from the credit provider the higher the contract annual percentage rate is above a benchmark or base interest rate.
The new provisions do not apply to home loans where white labelling and other arrangements in the home loan market enable the intermediary to managing contracts on behalf of the lender.
The instrument commences on 1 November 2018. Background.
The instrument does not apply in relation to a credit contract or a consumer lease that was entered into before 1 November 2018.
The objectives of the instrument are to:
(a) Prohibit giving benefits (including commissions) under a flexible credit cost arrangement where the amount of the benefit is determined by reference to the annual percentage rate under the credit contract;
(b) Provide for a limited exception to the prohibition that allows lower commissions to be paid where the price of credit reduces so that the outcome provides a benefit to the consumer (including where the annual percentage rate of a credit contract is reduced by a maximum of 200 basis points, or the cost of a consumer lease is reduced by a maximum of 4% of the rental charges);
(c) Address the risk of avoidance by casting the prohibition in broad terms (including addressing conduct in relation to consumer leases and some fees and charges).
The legislative instrument operates so that the lender, not the car dealer, has responsibility for determining the interest rate that applies to a particular loan. The car dealer cannot suggest a different rate that earns them more commissions. Car dealers will have a limited capacity to discount the interest rate and receive lower commissions, leading to lower costs for credit.
The prohibition does not apply to benefits given by a regulated person either to a director or employee or a related body corporate of the regulated person, or to a director or employee of any related body corporate.