Why brokers should consider car finance

Regulatory changes this year are giving brokers a unique opportunity to get into car finance

Why brokers should consider car finance
In a full-speed mortgage brokerage, diversification can be difficult: Brokers simply don’t have the time to sit down and brainstorm products that a homeowner might want. Instead, how about a product nearly all homeowners – and many non-homeowners – actually need? Enter the humble automobile.

Asset and equipment finance broking has been around longer than mortgage broking, and 40% of that market is cars. This year presents a once-in-a-generation chance for brokers to get into car finance, as ASIC has very publicly torn into the questionable practices of many car dealership financiers, vowing in March to ban flex commission. Now that the reputation of dealership financiers looks to be headed in the same direction as that of used car salesmen, brokers can use their trusted and highly regulated status to break into this market. As Cosi De Angelis, general manager of commercial origination at ANZ puts it, the regulatory and media scrutiny “gives brokers an enormous opportunity to talk to their customers about car finance”.

For Liz Wilson, who runs Wilson Financial in Bowral, NSW, car finance was a late addition to her brokerage. “The turning point was about five or six years ago when I decided but who traded up their cars regularly. Furthermore, her location in a regional area meant a number of her clients were selfemployed and needed commercial vehicles.

There’s a strong correlation between buying a house and buying a car, De Angelis believes. He’s urging mortgage brokers to expand their offerings to include car finance. Whilst training is required – as car finance is a tax-based product – ANZ runs multiple educational workshops for brokers. Conveniently, unlike many other types of finance, car finance does not affect existing security structures, as the loan is secured against the vehicle itself.

Some practical changes are required, however, as Wilson found with her brokerage. “Car finance is a different game,” she says. “You need to be thinking on your feet, and be able to process the deal in under 24 to 48 hours because your client wants their car straight away.”

Wilson Financial now has a dedicated equipment finance processor, as Wilson finds it difficult to write both mortgage and vehicle finance simultaneously. “If you try and do mortgages in the same breath as a car loan, you can become derailed in one or the other, because they travel at completely different speeds,” she explains.
Traditionally, brokers who offered car finance would receive flex commission – which ASIC has vowed to ban – and ANZ also offers a volume-based bonus at the end of the month. Brokers also have the option to charge a ‘broker origination fee’, which must be clearly detailed and justified to the client. Wilson charges it “only when extra work might be required, such as private inspection”.

Because a car costs far less than a home, commissions are correspondingly lower, thus, “if you have one employee on car loans, you want them settling two to three car loans a week to make it viable,” Wilson says.

Wilson offers a car-buying service through Macquarie Vehicle Select, which avoids clients’ exposure to unscrupulous car financiers at the dealerships. She also provides finance for complicated commercial vehicles and ‘yellow goods’; in fact, she can write a loan for an existing commercial client in as little as two hours, as commercial lending is not NCCP-regulated. “Equipment finance is really important,” De Angelis says, “given we’re at the low end of an interest-rate cycle and it’s a fixed-rate product.”

Getting into commercial vehicle and asset finance has a lot to offer brokers, but it needs to be understood, warns David Gandolfo, president of the Commercial Asset Finance Brokers Association of Australia [CAFBA].

“Equipment finance is really important, given we’re at the low end of an interestrate cycle and it’s a fixed-rate product” - Cosi De Angelis, ANZ

“You need some degree of experience and commercial knowledge in order to package loans appropriately in terms of their tax effectiveness,” he says. “Just writing a few car loans doesn’t make you an asset finance broker; it just adds another string to your bow.”

CAFBA, which has a reciprocal arrangement with the MFAA, runs PD days and educational workshops. “If you want to get serious about it, we can help you do that,” Gandolfo says, adding that it’s worth the effort because “asset finance brokers are very relational, not transactional”; commercial clients have an ongoing need for your services.

ANZ’s De Angelis agrees that offering car finance helps brokers ring-fence their clients. Wilson has witnessed this firsthand: Clients are starting to see her as “their one finance person”, with immediate benefits. “We are seeing our clients become more loyal, bigger advocates and more trusting with their finances,” she says.

Now is an ideal time for brokers to enter car finance, as ASIC cracks down on unsuitable practices by the car dealership financiers who have traditionally controlled this market.

Last September, a three-year ASIC review concluded that the add-on insurance policies sold by car dealers were “failing consumers” and that the industry was “on notice”.

In December, BMW Finance was fined $77m by ASIC in Australia’s biggest-ever credit remediation program. BMW had failed in their responsible lending obligations.

In March, ASIC announced they will ban flex commissions in the car market, amending the NCCP Act. Dealers may still be allowed to offer lower rates and consequently bring in reduced commissions.