Craig Thomson (Dobell, Australian Labor Party) Share this | Hansard source

The opposition are really on their game today in calling for the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011 to be sent to the House Standing Committee on Economics. It actually has been considered by the economics committee. If the member for Brisbane would like to read a copy of the committee's report on the bill, I would be very happy to send her one. It was in fact tabled here last Wednesday. So that was a great contribution by the member for Brisbane and showed her to be really up to speed on the stage the legislation is at. Well done!

This is good legislation because it protects the consumer. The National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011 makes a number of reforms to lenders' practices in relation to home loans and credit cards. For example, it requires lenders to publish key facts sheets for both these types of product, which will make it easier for consumers to compare products. Additional reforms for credit cards prevent lenders sending unsolicited limit increase offers to individuals, unless they elect to receive them; prevent lenders charging fees when a consumer goes over their credit limit, unless the consumer elects to be able to go over their credit limit; and require lenders to pay off consumer debt with the highest interest first, unless the consumer elects otherwise.

The most important reform concerns unsolicited credit card limit increase offers to individuals. During the committee's hearing into the bill there was consistent evidence that aggressive marketing of limit increases by banks was a key reason why some consumers had credit problems. Credit cards have a number of unique features, two of which are high interest rates and the requirement that consumers pay only a small amount each month. Aggressive marketing by banks appears designed to put consumers at the limits of their credit capacity, whereupon the unique features of credit cards mean that individuals are paying interest with little capacity to reduce the principal. While the debt treadmill may be good for bank profits, it has significant social costs. That is why the committee unan­imously supports this bill. Can I say, Mr Deputy Speaker, that is a rare occurrence. The committee also supports the bill because it will increase competition in the market and make consumers better off. Therefore, while there will probably be some transition costs for lenders, the increased competition will mean that the extra compliance should have no impact on prices for consumers. Costs for lenders should be further reduced, because many have already voluntarily adopted some of these reforms.

The committee made only two recommendations. One recommendation was that the House pass the bill. The contrib­utions of not just the member for Brisbane but most of those opposite show clearly that they have not read the report, because the other recommendation was that the deadline for financial organisations to have their key facts sheets ready should be moved back from 1 September 2011 to 1 January 2012. The evidence was that, given passage of this legislation, there were some timing issues in relation to that. I understand that the Assistant Treasurer will introduce some amendments in relation to that recom­mendation. The committee, in considering these issues, saw that this is a good bill and that it should be supported, with the one additional recommendation in relation to the facts sheet time line.

As I said, this was a unanimous report, which is rare for the economics committee in this parliament. The House economics committee has followed the pattern we have seen in this parliament, which is that generally all we get from the opposition is 'no'. Even with this legislation we were not quite sure, right up to the death, where the opposition would go on it, but two minutes before the report was tabled we heard that they would support the bill. It shows that even the opposition understood that, if they opposed this bill, they would be condemned out there in consumer land. Unfortunately, the opposition seem to have a different view of consumer rights when it comes to exit fees from banks, which they want to see reintroduced and which we are trying to make sure are not. It is a continuing battle. The primary reason these reforms were needed was in relation particularly to unsolicited credit card limit increase offers. The bulk of the evidence from consumer groups concerned the prevalence of the unsolicited credit card increase offers and their potential to lead customers into the debt trap. Reforms contained in this bill would make it more difficult for customers to take on credit card debt that they are not able to repay. Ms Karen Cox, the coordinator of the Consumer Credit Legal Centre, gave evidence that credit cards have been the most common reason for people seeking assistance for the full 10 years she has been there. She said:

There is no doubt that credit cards are an enormous cause of pressure on families. We have seen countless examples over the years of people on very low incomes who have accepted a series of credit limit increases.

Importantly, the Finance Sector Union of Australia also confirmed that over the past several years their members working in financial institutions have been asked to be part of what they describe as an increase in the number of unsolicited marketing and other letters from financial providers suggesting people should increase their credit limit.

While the majority of customers pay off their credit card balance monthly, the most profitable customers from the lenders' perspective are those who cannot afford to pay back the full balance every month. Treasury, in their evidence, said that one of the issues with credit cards is that you only have to make minimum repayments, and increases in the credit limit can place you in a position where you are carrying long-term credit card debts without ever necessarily being able to significantly reduce those debts.

Research by consumer groups shows that banks have aggressively marketed credit cards. Mr Mark Degotardi from Abacus gave evidence that that is what they had seen and noticed. There was a study done in 2009 which showed that 84 per cent of Victorian credit card holders had received an unsolicited credit card limit increase offer. We are seeing almost everyone in Victoria in this particular study being offered an increase.

The study also broke it down into different groups and showed virtually the same rate of credit card limit increase being offered to people who are unemployed—84 per cent of unemployed people in Victoria had been offered an increase; 83 per cent of those studying had been offered an increase; and, 82 per cent of people with a healthcare card had been offered an increase. Banks certainly were not looking at people's capacity to pay; they were looking at ways of maximising profits and using the unique nature of credit cards, which is the high interest rate and the low minimum payment where you pay only part of the interest back and never get to the principal, as being one of the key issues. That is why this government has gone about making sure that we address these issues. We are addressing consumer concerns in a wide range of financial issues including exit fees, which the opposition continue to oppose, but we are doing it particularly in relation to credit cards because of the problems consumer groups continually told us about—the heartbreak of families who have used credit cards to pay bills to get by each month and who, in doing so, get themselves into a worse situation. Almost universally they were getting unsolicited offers to increase their credit limit.

This is an important bill which makes sure consumers are protected. It is part of a range of bills which this government has been introducing to make sure consumers are looked after.

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