New laws banning flex commissions in the car finance industry have officially commenced, ushering in a new system which the Australian Securities & Investments Commission (ASIC) says will result in fairer and more transparent pricing on car loans for consumers.

Flex commissions paid by lenders to car finance brokers (typically car dealers), allowed the dealers to set the interest rate on the car loan. The higher the interest rate, the larger the commission earned by the dealer.

The ban, which came into effect on 1 November, 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. They will have a limited capacity to discount the interest rate, but only to reduce the price so that it operates to benefit the consumer.

ASIC implemented the ban by making a legislative instrument in September 2017 using its powers under the National Consumer Credit Protection Act 2009.

Penalties for non-compliance by lenders are up to $420,000 per contravention.

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