Scott Buchholz (Wright, Liberal Party) Share this | Hansard source

I sit on the Standing Committee on Economics and this bill seeks to introduce major changes to the relationship between credit providers and consumers in respect of credit cards and home loans. It forms part of the banking reforms announced by the government designed to empower consumers, to support smaller lenders and to secure the flow of credit to our economy. In principle we do support this bill. However, there are some points raised during taking evidence and listening to witnesses that it is prudent for me tonight to pass on so that we have an entirety. This bill is going to need constant massaging and constant monitoring as its implementation has an impact on the market.

The bill has a provision to introduce a requirement for lenders to produce a key facts sheet for standard home loans. We do not have a problem with that. The more information we can give a consumer to make a value decision the better. The downside to the fact sheets is that there will be an extra cost, an extra imposition on the banks, and undoubtedly the banks will pass that on. I do not see the banks shifting to an environment where their fine print will become less. It will be just another layer of administration. Notwithstanding that, I think there is substantial benefit in people being made aware of their financial responsibilities. The facts sheet would set out in a standardised format pricing and other information about their products, allowing consumers to readily compare different home loans. The banks will be encouraged to actually personalise the data for the client so that they will be able to shop apples against apples.

Also, the bill tends to regulate the circumstances in which borrowers can exceed their credit limit on their credit card and prohibits fees being charged by the credit provider when they do so, except when the consumer has adopted to have a higher buffer on which they can be charged fees. I do not get this, because the body of this bill speaks to protecting consumers with credit card debt from unsolicited invitations, but this part of the bill, with reference to a buffer, is something that I struggle with. If we are trying to restrict unsolicited limits to credit card holders, providing a buffer for the consumer is exactly the juxtaposed position of what the body of this bill speaks to. So whilst it is in there I will speak to it, but I definitely have concerns, unless I have misinterpreted it.

The bill also speaks to specifying a hierarchy of payments made under credit card contracts, requiring credit providers to allocate repayments by the borrower to that part of the balance of the credit card on which they have charged the highest interest rate, unless they have elected to make different payment arrangements. With most of the standard credit cards there are default or higher components of your credit card expenditure that are exposed to greater interest payments. For example, if you get a cash advance on your credit card you may be paying an extra two or three per cent or a fee to get that cash advance. So, when you go to make your minimum monthly payment the bill intends that the payment will be calculated to offset higher amount of outstanding funding. This part of the bill does make sense. Hopefully, it will reduce some of the burdens for consumers.

This bill speaks to restricting credit providers from making unsolicited invitations encouraging borrowers to increase their limits and credit cards, except when consumers have consented to receiving such offers. We have all seen the volume of such mail that comes through our letterboxes. If you have, or have had, a credit card the banks have taken a position of going out and soliciting increases in limits. My concern was—and I will give my defence of the banks later on in my speech—that the banks make these unsolicited offers, such as increasing a person's limit from $500 to $5,000, without being diligent enough about the capacity requirement or in their evaluation. Enormous cost-of-living pressures are being borne by society as a result of the fiscal management of this country at the moment. There are people in my electorate who are on their knees. Credit card payments and expenditure are the ways in which they are keeping their heads above water. They are paying their energy bills, kids school fees and buying fuel for their car on their credit card. Some of them are actually buying their weekly groceries on credit cards. When you have cost-of-living pressures mounting up to the back teeth and you have an offer from the bank to increase your credit limit from $500 to $5,000, it's Christmas! You are not a logical rational thinking person when it comes to taking up that option. As a result we have this pain in the marketplace.

We heard this from Consumer Action Law Centre and the Consumer Credit Legal Centre, who gave evidence. Some of the stats they referred to were that out of all the people they were dealing with who had credit card default problems 60 per cent had one credit card and 40 per cent had multiple cards. I thought that was an interesting statistic to share with you. We would probably not have to be dealing with this legislation as aggressively as we are if we had stronger fiscal responsibility and the cost-of-living pressures in society were not as intrusive as they are at the moment.

The last point the bill speaks to is an introduction of a requirement for lenders to provide a key facts sheet for credit card contracts. The bill makes it mandatory for credit card providers to include in credit application forms key information about annual percentage rates and other terms that would apply to a contract. This part of the bill just speaks to a mandatory note on your credit card bill alluding to the fact that if you continue to make the minimum monthly payment on your credit card your term for the outstanding balance should be shown. So, on a standard $5,000 credit card, if you make a minimum account balance payment you could be entering into a term of up to 15 to 20 years to pay back that debt. Passing that information to the consumer will hopefully motivate people to reduce their debts quicker.

One of the issues raised by the parties in relation to the consultation process was the short time frame permitted for submissions to be made. I have some dates here. The exposure draft was released by Treasury on 4 March. Given the importance of this bill and the number of people it affects, it was a little unfair that the closing date for submissions was—wait for it—8 March. Treasury put it out on Friday the 4th; then there was the weekend and Monday. This had to be submitted by Tuesday, 8 March—way too short a time for consideration and for the market and stakeholders to respond. The Australian Bankers Association articulated a concern that the banking industry has not been able to fully assess the potential impact or the likelihood—

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