In the past few weeks we have been highlighting many of the financial impacts this new model has on agents vs dealers with strong positive feedback from retailers, many of whom have suggested further investigation of the model for these articles.

One such request has asked for discussion on the effect on retailers who are setting out to finance a car that they do not own when the point-of-sale exemption rules require that the car being financed by the retailer must be the vendor’s own product. 

This has exposed the whole issue of the point of sale exemption and the impact it would have on dealers should it be removed.

Here is how the Pitcher Partners team has reviewed this issue:

What is the point of sale (POS) exemption for finance and what does it mean?

The point of sale exemption was originally introduced in the National Consumer Credit Protection (NCCP) Act in 2009 and it was never intended to be permanent. 

It was borne out of the 2009 reforms to consumer credit protections which introduced the requirement to have a credit license to sell finance to consumers. However, an exemption was granted at the time to allow car dealerships to operate without an Australian Credit License (ACL) given the significant impact it would have had on dealership profitability and the lack of a pathway for dealers to continue to sell finance to consumers to purchase their vehicles.

The exemption continues to today, despite the POS original intention for it to only be a brief band aid fix. Nearly a decade later in 2018, the Royal Commission into the misconduct in Banking and Financial Services industries brought the POS exemption back to the forefront, recommending its removal.

The question everyone is asking, when will it be removed?

The answer is: no-one knows. The pandemic has certainly delayed the removal of the POS exemption which was estimated to have been in the books since February 2020. 

Unfortunately, no-one knows what the new rules will look like either, we can only be sure that they will seek to restrict the ability of dealers to provide consumers with convenient and affordable car finance in the absence of an Australian Credit License.

Is the POS finance exemption available to an Agency dealer vehicle sale?

Under the NCCP regulations, the point of sale exemption “only applies where the introducer deals directly with the credit provider/lessor and facilitates finance of the vendor’s own products or services”.

But the vehicle being sold by the Agency is NOT the vendor’s own product.

This might be the catalyst to hasten the removal of the POS exemption for dealerships without it even being formally legislated.

What does this mean for dealers?

Given the very likely outcome of the POS exemption being removed, dealers will be required to stop directly selling finance to customers or obtain an ACL which are difficult to obtain and expensive to maintain. 

Regardless, dealerships must be ready to respond. 

Finance margins have been impacted post the abolition of flex commissions and the stripping away of financing insurance products and related commissions, and this change will only make it more difficult to continue to sell cars profitably.

What dealers need to do to protect their finance income?

A survey done by the AADA in 2019 showed that very few dealers have their own ACL or are appointed as credit representatives for their finance providers. This means a majority of dealers will be affected. If we take the recent changes to F&I legislation as an example, most dealers were ill-prepared, and some were blindsided by it.  There is not silver bullet here and dealers need to prepare regardless.

Therefore, the dealer will need to align with a broker and work under the brokers’ ACLs or get an ACL themselves. 

Another alternative is for the OEM’s captive finance company to employ the F&I staff at the dealer and work under their ACL.

Importantly, if the customer is financing the purchase online with the OEM captive finance or the F&I staff that are employed by the captive, why would the dealer get a commission at all? 

The impending abolition of the POS exemption and the impact of the agency model on dealers (and their POS exemption, see above) will be a significant threat to mostly smaller and regional dealers that depend on the exemption.

Steve Bragg is a partner at Pitcher Partners Sydney and lead of the motor industry services team.

Earlier report: Agency model: please consider

By Steve Bragg