The banking royal commission exposed poor practices by some dealers signing customers up for car loans and now the recommended remedy could also hit the so-called interest-free deals offered by many retailers.

Key points: The royal commission recommends removing the point-of-sale exemption, which allows car dealers and shops to offer finance without holding a credit licence

The royal commission recommends removing the point-of-sale exemption, which allows car dealers and shops to offer finance without holding a credit licence The Motor Trades Association of Australia says a survey of one state found just eight of 68 dealers hold a credit licence

The Motor Trades Association of Australia says a survey of one state found just eight of 68 dealers hold a credit licence The Government backed the recommendation but says it will consider the impact on businesses and consumers

Car dealers and shop assistants can currently offer loans or credit cards and help customers fill out the forms without holding a credit licence.

The 'point-of-sale exemption' contained in the National Consumer Credit Protection Act means a dealership or retailer does not need to hold a credit licence or comply with responsible lending obligations.

Instead, those legal responsibilities fall back on the bank or lender assessing and issuing the loan.

However, the final report of Kenneth Hayne's year-long royal commission recommended abolishing the exemption — a move welcomed by consumer advocates.

"We think that when consumers are buying any products with finance, they really need to deal with the right experts," said Amanda Storey from the Consumer Action Law Centre, describing the exemption as a "loophole" that needs to be closed.

"When you go to a car yard, car dealers are really good at selling cars but they don't necessarily have the right expertise to recommend loan products or other expensive or complex financial products."

Retailers 'caught by surprise'

Car dealers were bracing for recommendations in the royal commission's final report, having featured prominently in the public hearings, with evidence of exorbitant interest rates, loan applications filled out incorrectly and repayments not explained to customers.

However, another industry caught up in the potential crackdown was not expecting it, with the head of the Australian Retailers Association calling it a "rude shock".

"I think it's caught the whole industry by surprise," Russell Zimmerman said.

In-store finance is prevalent among retailers that sell bigger ticket items such as appliances, electronics, jewellery or furniture.

Retailers from Harvey Norman and The Good Guys to Carpet Court and Snooze offer interest-free repayment plans to help take the initial sting off large purchases, such as white goods, furniture or electronics.

Interest free deals usually come with an asterisk — extra conditions can include monthly fees and high interest rates if the loan is not paid off in time. ( ABC News: John Gunn )

"What we see at the moment is retailers just use general staff to set the scene, apply for the loan and then it's handed on to the finance company, and the finance company then gives the approval," Mr Zimmerman said.

He thinks some retailers will not be able to absorb the costs of getting a credit licence and training staff if the point-of-sale exemption is removed.

"For some smaller retailers, they just won't be able to afford to do this.

"You get jewellers who offer to do finance within jewellery stores — now if they've got to be specially trained, either the owner or they've got to put staff through that, that is a cost that the consumer will obviously have to bear."

Interest-free doesn't always mean no cost

However, consumer advocates argue that specialised staff are necessary to protect shoppers.

Interest-free deals may seem self-explanatory but often come with flat monthly charges, establishment fees and hefty interest rates if the loans are not paid off in the designated period.

While banks and lenders are currently responsible for assessing loans that come from in-store applications to ensure they are not unsuitable, Consumer Action's Amanda Storey thinks point-of-sale staff also need to be responsible for making sure a customer can afford the loan.

"This is an extra layer of protection for consumers," she said.

Small businesses worried about cost and compliance burden

While the car industry was more prepared for the effects of the royal commission than the retail sector, some dealers are still concerned about the added cost and regulatory burden.

Larger dealer groups, such as the ASX-listed AP Eagers, already hold credit licences and say systems are currently in place to assure compliance but not all dealers are in the same position.

Richard Dudley leads the Motor Trades Association of Australia, which assessed the impact on its members, including dealers and other auto industry retailers, in the wake of the commission's final report.

"In one state, a survey of 68-odd dealers, only eight of them actually have a credit licence," he said, noting that smaller businesses and dealers in regional and rural Australia are less likely to hold a licence.

With increased regulatory scrutiny on car loans over the past few years, Mr Dudley said banks and lenders have already introduced accreditation programs for their aligned dealers.

The fee for a company to apply for a credit licence begins at $2,055, with other costs including staff training, insurance, compliance monitoring and the fee to join the external dispute resolution scheme.

Government not rushing to implement changes

The Government has backed the royal commission's recommendation to abolish the point-of-sale exemption. In its response to the final report, it said it recognises the impact the change will have on many businesses.

"[The Government] will carefully consider how these reforms are implemented to ensure balance is achieved between consumer protection and access to products and services."

Both car dealing and retail industry lobby groups have welcomed this approach.

"We're not necessarily saying this shouldn't occur, what we're saying is before any implementation of these recommendations there must be serious consultation," said the Motor Trades Association's Richard Dudley.

Russell Zimmerman said the Australian Retailers Association will be asking the Government to "give us an opportunity to outline how this will affect both consumers and retailers."

However, the Consumer Action Law Centre will not be happy if the recommendation gets watered down following any consultation process.

"Our recommendation would be that the whole point-of-sale exemption be removed. This is to keep in the spirit of the recommendation by the royal commission to simplify our laws," Ms Storey said.