Steven Ciobo (Moncrieff, Liberal Party) Share this | Link to this | Hansard source

I am pleased to rise on the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011, not because I am fervently in support of the bill but more broadly because I believe in policy measures that in broad terms are supportive of improving consumer protection and enhancing consumer transparency. When it comes to the single biggest credit items that affect most consumers and most people in the community, home loans and credit cards are among them. That said, the government's bill that is currently before the House is not a bill that the coalition will be opposing, although it is also not a bill that we are completely supportive of.

The reality is that, in typical Labor fashion, the bill that is before the House wades its ugly way into the marketplace and sets about ensuring that there are a whole raft of new legislative protections, as they are labelled, to try to policy-manage and effectively legislate their way to a better market outcome. The question is: could this have been achieved through other methods? We had raised a number of concerns when the first iteration of this bill was put before the Australian public. We raised concerns about the approach that Labor was adopting. At the time the government said that our concerns could not be incorporated into the legislation because they would have undermined and eroded the value of the legislation as the Labor Party saw it.

What we have seen though, following an inquiry into this particular bill by House of Representatives Standing Committee on Economics, a committee of which I have the great fortune of being deputy chair, is that a number of the recommendations the committee has put forward and a significant amount of the evidence that came forward from witnesses before the committee have now been incorporated at the eleventh hour into the bill before the chamber this evening. So it has come to pass that a large number of the reforms which were sought by the coalition and which were ruled out by the Labor Party have now been incorporated into the legislation which we are currently debating. That said, though, in broad terms—let me stress that it is in broad terms—I am supportive of measures that are contained within the bill to do a number of key things. The first is the requirement for lenders to provide key facts sheets for standard home loans as well as for credit cards. These are important measures which enhance consumer protection insofar as they provide what is effectively a ready reckoner. The reality is that consumers receive great wads of information. My constituents on the Gold Coast in my seat of Moncrieff and all of us in this chamber know that when you have interactions with banks, when you have dealings with financial houses, you receive wads and wads of paper: statements of advice, policy disclosure statements and all those types of items. To be able to distil it down to its most basic elements, which is effectively what the key facts sheet does, is a welcome addition to the arsenal that consumers have when it comes to determining which is the best home loan or credit card, what the pitfalls are and what the various charges associated with that credit card or home loan are. In that respect I welcome it.

There are of course some other reforms that have been made with respect to prescribing rules for approval of the use of credit cards above their credit limit, specifying an allocation hierarchy for payments made under credit card contracts and restricting credit providers from making unsolicited invitations to borrowers to increase the credit limit of their credit card—as well as introducing a requirement for lenders to provide a key facts sheet for credit cards, as I said. A number of these subelements of the legislation are important because they have a material impact on the functioning of credit providers. In particular, one is straightforward and is supported by this side—that is, the specification of an allocation hierarchy for payments made under credit card contracts. It is certainly worthwhile that there be an allocation hierarchy such that repayments made on credit cards go to paying down the debt that attracts the highest interest rate. That is a smart step. It is a step that we are supportive of. It is a step that is proconsumer and therefore of benefit.

But also contained within this legislation are issues of concern. One of them, which has now been amended at the eleventh hour, was about rules surrounding the use of credit cards above their credit limit. I am Deputy Chair of the Standing Committee on Economics. We heard evidence from a number of witnesses that highlighted their concern about what the impact of Labor's legislation would have meant. In the first instance—this was an obvious concern and one that I raised with witnesses as well—was the issue about whether, as a consequence of Labor's legislation, we would see a situation where credit providers provided a higher than usual credit limit to a customer, expecting that subsequently they would be unable to raise the credit limit unless they had jumped over all the hurdles that this legislation effectively put before them. The clear and unequivocal answer from witnesses was: yes, the consequence that was most likely as a result of this legislation would have been a higher initial credit limit. So one could rightly wonder why the Labor Party was undertaking this.

Certainly, as with many things Labor attempts to do, it is driven by a sense of purity, I guess, in some respects about the outcome that is being sought. The reality is, though, that the application is often worse than the affliction which Labor is attempting to address in the first instance. That was the case with the original iteration of this legislation. Now that has been amended so that consumers can give their consent to there being, for example, additional fees and charges associated with going over their credit limit as well as with respect to the way a credit limit is assigned in the first place. In that sense, I am pleased that the Labor Party has seen the common sense that was put forward by the coalition and incorporated those changes into the legislation.

A second aspect of this that causes me some concern is with respect to so-called unsolicited invitations. As a matter of principle, I do not really understand why we feel it necessary for there to be legislation with respect to unsolicited invitations. The reality is that anyone who watches some television, listens to some radio or reads some newspapers sees advertising for all manner of products and services. It is part of daily life. When you drive in your car, you see billboards. When you turn on the television, you see advertisements. We are not compelled to race out and purchase all those items as a consequence of seeing advertising. Indeed, for the manufacturers and service providers that are advertising in a market economy, I think it is part of their routine business. In fact, I think most people have become desensitised to a large extent to advertising. Yet for some reason the Labor Party takes the view in this legislation that we are able to withstand advertising in all manner of other things but not when it comes to credit card limits. When it comes to credit card limits, apparently we are all suckers and immediately sign up to increasing our credit limit on our credit card.

Given that there are criminal sanctions under the legislation, at least in its first iteration, which apply as a result of an unsolicited invitation to increase your credit limit, you have to start scratch your head about whether or not this is a little heavy-handed. My personal view is that it is heavy-handed. My personal view is that it is crazy to be saying to financial lenders, 'Don't you dare provide an unsolicited credit offer, because if you do that then you're in breach of the legislation, and if it is a personal employee they're in breach of the legislation and potentially subject to criminal sanctions.' It is madness. Why is it that consumers apparently have the ability to discern what they should consume when it comes to other products and services but they cannot do it with respect to credit cards? I think it is one bridge too far. I think it is unnecessary. In that sense, I certainly have some concerns. It also lacks common sense.

Again, a key part of the testimony from witnesses before the committee when we undertook the inquiry related to whether or not it was commercially sound for a financial lender to lend a consumer more money than that consumer was able to pay back. Of course the answer is no. That is not a sustainable business model. The reason most borrowers are not in a situation to repay their debts is typically because of a life-changing event like the loss of employment. That typically is the reason why people get themselves in hot water, and it is often unforeseen. Given that that is the key driver of many of the defaults, especially of credit card borrowers, you have to question why this subelement of this legislation is necessary. Given that it is commercially unsound to do it, and therefore you would assume that there is not a demand in the marketplace for it, why would it happen?

That is not to say that there are not some fly-by-night operators, and there has been some evidence that there has been at a very minor level. So again the question is: why regulate an entire industry when you are attempting to address a very small percentage of those that are effectively, for lack of a better term, breaking the rules and operating in an unsustainable way? That notwithstanding, I guess it does provide the opportunity for the Labor Party to beat their chests and claim they are all about the consumer and all about empowering people. But what consumers need to know is that they end up paying for all this red tape, they end up paying for all these protections, they end up paying in some way, shape or form for all of the compliance that is associated with all of these additional regulations. It is consistent with the big government approach of the Labor Party.

However, I outline, as I said, that there are a number of aspects that I am broadly supportive of, especially with respect to the key fact sheets and particularly with relation to the allocation hierarchy for payments. In that sense, whilst I certainly do not commend the bill, as a member of the opposition I am also not totally opposed to it.

Graham Perrett (Moreton, Australian Labor Party) Share this | Link to this | Hansard source

I rise to speak in support of the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011 and note the support, broadly speaking, of the member for Moncrieff. I commend him on his contribution. I am sure that when the Turnbull tide returns he will be promoted to the front bench.

Chris Bowen (McMahon, Australian Labor Party, Minister for Immigration and Citizenship) Share this | Link to this | Hansard source

Shadow Treasurer.

Graham Perrett (Moreton, Australian Labor Party) Share this | Link to this | Hansard source

Yes, shadow Treasurer perhaps. This bill delivers on our election commitment to get a better deal for consumers with credit cards. Any Labor member or anyone representing any seat knows that this is a huge issue. Whilst it is very easy for the member for Moncrieff to talk about pure markets and ability to say no to advertisements, the reality is that with credit it is a slightly different market. It is a bit like the carbon price: there are some times when the market does achieve the best things and occasionally we need to have the hand of government in there.

I note that in April this year there were 14.8 million credit cards in circulation in Australia, with a total credit limit of almost $135 billion. In April the credit card debt of Australians was $49.3 billion and Australians made many millions of purchases on their credit cards. I would like to go on the record and note that less than half of those purchases in April were from my wife!

Chris Bowen (McMahon, Australian Labor Party, Minister for Immigration and Citizenship) Share this | Link to this | Hansard source

Is she listening?

Graham Perrett (Moreton, Australian Labor Party) Share this | Link to this | Hansard source

I am hoping not. And in April we had the Easter holidays, so there was at least one day when most of the shops were closed down. But still there were all those purchases. That credit card debt in April was $49.3 billion and if you go back to December you have that Christmas spike when it was up to $158.9 billion. So obviously credit cards are an important part of their daily lives for many people.

The legislation before the House is not about bashing the banks but is about ensuring that we have a regulatory framework in place to protect consumers from excessive fees. It also gives them greater control over how much they borrow. Rather than just let the market rip, it is important to have controls and some checks and balances. This is in response to growing community concerns about some bank behaviours and this bill therefore amends the National Consumer Credit Protection Act 2009. Firstly, the bill changes the way banks apply credit limits. Currently banks allow credit accounts to exceed credit limits and then charge an over-limit free. These fees alone cost consumers $225 million a year. With about 22 million Australians, that is about $10 each just in the over-limit fees. This bill limits the amount credit accounts can go over to 10 per cent above the credit limit and abolishes the fee when they do. Consumers can also opt out of this buffer if that is best for them or they can negotiate a larger buffer, which would be subject to a fee. This measure strikes the right balance. It prevents banks from slugging consumers with excessive over-limit fees and empowers consumers to choose whether they can go over their limit. As I said, at the moment there is about $10 in fees for every man, woman and child in Australia. Hopefully not everyone in Australia has a credit card, but still it is a significant amount. This bill also requires credit card lenders to allocate repayments to a consumer's higher interest bearing debts first. As we know, that stops the compounding effect to a slight extent. It overturns the practice of lenders allocating repayments first to debts with the lowest rate. It is expected that this could save consumers around $360 a year, depending on their spending habits.

This bill also includes measures to help protect consumers from excessive debt. It does so by banning unsolicited credit limit extension offers being sent to credit card holders. I did a bit of a survey today, knowing that I was going to deliver this speech, to find someone that had not been given a credit card offer. Irrespective of your income, how many people have been made these offers? This is just my little snap survey, admittedly—I did not wander into the Liberal Party room today and talk to them—but the norm seemed to be that people's credit limit was doubled as a matter of course. They were able to immediately double what they were able to rack up. Now lenders will not be able to send offers to extend credit limits unless consumers have already agreed to receive these offers. To placate the concerns of the member for Moncrieff, you will still be able to tick the box and be sent offers if you are comfortable with that.

We all know it is quite enticing the way these offers are sent out. In Catcher in the Rye Holden Caulfield talked about the fact that everyone wants to be in a club and the more exclusive the club the better people feel about themselves—so the bronze club, the silver club, the gold club, the platinum club—and sometimes it is a case of offering to change you from a gold to a platinum, yet it does not really change anything except the colour of the card, but people mistakenly feel they are in a more exclusive club. I am not sure what sorts of colours and metals they progress on to, but everyone likes an exclusive club and the people who offer credit cards understand that. It is a bit like Calvin in Calvin and Hobbes offering to build a cubbyhouse only for boys. This will provide some protection for consumers, who can easily end up with a credit limit they cannot afford. We all know that if someone receives a credit card offer at the same time as losing their job or their circumstances change they may make a short-term decision that will get them out of trouble for a few payments but obviously, in the long term, at the higher interest rates that are attached to the credit cards, the debt chases hardship and ends up compounding the problems.

This bill also introduces a new requirement for lenders to include on credit card application forms a facts sheet with a clear summary of key account features. This is a long overdue measure that will give consumers important information including the annual fee; the interest rates on purchases, cash advances and promotional offers; and other relevant fees. We have all been sent the product disclosure statements, but if we did a survey I wonder how many people, including lawyers, would have actually read all of the product disclosure statements they receive in the mail. It would be a very small percentage I would suggest. It should be incumbent upon banks to ensure that their customers are fully informed about this kind of information so they can make an informed choice when selecting a credit product. The clear summaries are a great feature. This information should not be buried in complex terms and conditions booklets but should be made obvious to consumers as part of the application process. In the past I have gone through the PDS and crossed out the odd paragraph every now and then and returned it. I have done it a couple of times and never actually received any comment back from the people. So, maybe consumers are not reading it and the people who send out the information are also not reading it. The key facts sheet mandated by this bill will ensure more appropriate disclosure to consumers. (Quorum formed)

I promise I will not say nice things about the member for Moncrieff again, if that was the reason for the quorum call!

The bill requires lenders to provide a key facts sheet to set out the costs of home loans to allow consumers to more easily compare home loan products.

It is no surprise the banking sector is not overwhelmingly behind this bill. The Australian Bankers Association have come out swinging, but I do not think we need worry too much about our banks or lose too much sleep over them. The 'big four' have reported first-half-yearly profits—so, just six months—of $11.9 billion, which is about $540.91 for every Australian. The Commonwealth Bank posted $3.3 billion profit to December 2010, NAB earned $2.67 billion, Westpac a cool $3.16 billion and ANZ's six-month profit was up a massive 38 percent to $2.66 billion. No-one is suggesting the banks should not be profitable, and I think most of us would agree that the strength of the Australian banking sector played a part in shielding Australia from the full impact of the global financial crisis. When we saw banks around the world tumbling, we saw that our 'big four' were consistently in the top 15 banks in the world. I commend the opposition for their contribution to making sure that we have had a strong banking sector. It is something that there has been bipartisan support for. As well, there were government measures during the GFC, such as the bank deposit guarantee.

Banks answer to their shareholders and most are no doubt very happy with the half-yearly profit reports. But the banks also have a social licence to provide financial credit and enable measured economic growth and fiscal stability throughout Australia. The Gillard Labor government believes that with this social licence comes an obligation on the part of the banks to protect consumers and not lure them into unaffordable and unreasonable credit deals. We should acknowledge that banks such as NAB are actually leading the way when it comes to some of these reforms, and I do commend the banks that have taken these initiatives. They have already scrapped some over-limit fees and now allocate repayments to the highest interest debts first. These are terrific initiatives for consumers and also prove that the sky will not fall in for Australian lenders when these reforms come into force. I commend the bill to the House.

Jane Prentice (Ryan, Liberal Party) Share this | Link to this | Hansard source

By introducing these changes to the National Consumer Credit Protection Act, these amendments form part of a knee-jerk change put forward by this government. Given this Labor government's track record of unsuccessful and bungled delivery of change in Australia, I am understandably apprehensive about the possible outcomes.

The banking sector is one of the most important industries in Australia. Given the world that we live in today, it is of the utmost importance that the services provided by banks deliver the best possible outcomes for consumers. Increased competition within this sector will help to improve these outcomes and deliver better services for all Australians.

However, we must be wary of knee-jerk reactions to perceived problems. Australia's banking sector fared better through the global financial crisis than that of any other OECD country. Whilst we saw massive runs on Northern Rock in the United Kingdom and Bear Stearns in the US, the collapse of Lehman Brothers, the acquisition of Merrill Lynch, the bailout of Morgan Stanley and Goldman Sachs, and the US federal takeover of Fannie Mae and Freddie Mac, the Australian sector, whilst taking a hit, did not teeter on the precipice of destruction like others did around the world.

That was due, in a large part, to our superior regulation system. Of course, the responsible economic management of the Howard-Costello government provided an unparalleled cushion for the Australian economy. However, the system of regulation present in Australia, with both ASIC for financial services and APRA for the banking sector, helped keep us out of the storm.

The dovetailing of these two regulating bodies was real reform of the banking sector in Australia. It was considered and responsible. Whilst the banking sector is in need of review, given the massive changes the world has undergone, we must ensure that any such reform is not knee-jerk and reactionary and that we study and understand the unintended consequences of any such reform.

Measures that this government is proposing, with the stated purpose of consumer protection, could in fact have the exact opposite effect. Banning exit fees, for example, could very well have a detrimental effect on smaller lenders, severely decreasing competition. Such a decrease would further centralise big lenders' purchasing power, leaving the consumer worse off.

The banning of exit fees is a classic example of this government's policy of reaction and it is important to briefly discuss this today as an example of why we must ensure that the current amendments do not follow in the same vein. According to the Australian Bureau of Statistics, small lenders' market share of mortgages has already fallen, from above 13 per cent in the period pre the global financial crisis 2007, to just 1.2 per cent in February this year. The ability to recuperate the costs of establishing a mortgage through an exit fee penalty is extremely important to a small lender, who has less of an ability to absorb this outlay than the big lenders.

Whilst at face value the banning of exit fees may seem like a popular measure, it is also regarded as a major threat to competition within the sector. Even the Senate Economics References Committee inquiry into banking competition echoed these concerns and recommended that the government re-evaluate the outright ban, which is currently planned to come into effect on 1 July this year. The proposal is a perfect example of how a rash and rushed decision can in fact have unintended consequences and exacerbate a situation rather than fix it. The proposal is a perfect example.

The amendments put forward today have the usual, distinctive ad hoc Labor feel to them. Australia's strong banking sector should not be put to the test unnecessarily through poorly thought out policy. This is why the coalition has been engaged in the issue of banking reform for a long time. We take competition in the banking sector seriously and support sensible measures to improve the industry.

Some elements of the bill have merit, such as the changes to the hierarchy of payments under credit card contracts, which would facilitate consumers to pay off the transactions with the highest interest rate first. However, it seems that many of the considerations in relation to credit cards are poorly drafted and the concerns of the industry have not been fully addressed.

I am therefore concerned about the lack of clarity within these government proposals. It is particularly apparent with retrospectivity in relation to existing credit contracts. Currently, the bill proposes that the changes being made to credit card regulation apply only to new contracts. That means that current credit card holders would not benefit from the reform. This raises concerns and the government has provided no discussion as to why existing contracts should not be subject to the changes proposed in this bill. If there is a clear reason, be it legal or constitutional, as to why existing contracts should not be included, I call upon the government to make these reasons known.

Additionally, it seems to me that poor drafting now appears to, in effect, allow every new credit card customer to be provided with an automatic 10 per cent limit increase. This clause essentially aims to protect consumers by disallowing lenders to charge high fees for drawing over their limit. However, it is implemented in a confusing way that does not provide simplicity or clarity for the consumer. Also, this 10 per cent default buffer applies to all contracts, unless the customer has chosen to opt out. This, effectively, results in a credit provider having no option but to provide this buffer, whereas it is currently at the lender's discretion to allow or disallow an overdrawn transaction. It essentially locks lenders in to providing 10 per cent more credit, reducing flexibility and potentially having many negative unintended consequences.

This gets to the core of my concern about these amendments. They take away flexibility and assume that, for credit cards, one size can fit all. That is simply not true. By locking lenders in to prescriptive regulation, this bill could unintentionally result in credit providers being forced into acting in a way that does not best suit their customer and these regulations would affect every provider. The customer would no longer have the choice of leaving their current lender in search of a better deal. Given this, I ask the government to truly look at the unintended consequences of this bill. Considering the number of amendments to legislation that have been put before the House this year alone that deal with little more than retrospective clean-ups, it would be much more sensible and efficient for the government to simply get the drafting right in the first place by properly considering these factors.

As well as the abovementioned issues with the provisions in relation to credit cards, I have concerns about the changes to home loan regulation, particularly the time frame the government has set down for these quite time-consuming changes to be made. This will in turn affect the rollout of the key facts sheet, which, under this bill, all mortgage providers must present and provide about their home loans. The proposed key facts sheet is a one-page sheet that provides a summary of a mortgage provider's home loan that can easily be used to compare different institutions' offerings. These key facts sheets are meant to be provided by September this year; however, it is now June, and the government is yet to inform stakeholders as to what is required for these sheets—how they must look, what they must contain and how they will cover fixed-rate loans or lines of credit. This will give providers just two months to create, test and implement the new system and train staff around the country to be competent with this new measure. The credit provider alone is responsible for these key facts sheets. They cannot be managed by a mortgage broker or manager.

The Treasurer has taken almost 12 months to get to this stage of the legislation, which is still riddled with poor drafting and unintended consequences. Yet he is now trying to give the industry just two months to comply, assuming that the legislation receives royal assent this month. Given the harsh penalties that will be enforced if these key facts sheets do not meet the regulatory requirements, a two-month time frame is unrealistic and arrogant and is evidence that the government does not particularly care how its legislation actually affects people. It has regard for superficial appearances only.

Furthermore, the introduction of a key facts sheet once again assumes that a one-size-fits-all approach will work. It will not. The introduction of such a scheme places an obligation on a whole sector of people, including mortgage brokers and mortgage managers, and imposes very high penalties for a product that is already widely available. A key facts sheet, in reality, is simply an outline of what is potentially available. It is not a finalised assessment based on an individual's situation and cannot be substituted for one. A mortgage is a huge commitment for most people. To believe that reform can come from what is essentially a simple summary sheet is irresponsible, unrealistic and, to be honest, quite a frightening simplification by the Treasurer of a very complex issue.

Whilst the coalition will not oppose this bill, the bill raises real questions as to the government's ad hoc approach to policy. For four years now this government has been short on reform and has broken promise after promise. This is, quite rightly, turning the electorate against them. With these amendments we see a scrambling, haphazard response to an extremely complex issue. This bill highlights the common sense of the coalition's call for a full root-and-branch review of Australia's financial system. I implore the government to take the same approach.

Chris Hayes (Fowler, Australian Labor Party) Share this | Link to this | Hansard source

I rise to speak in favour of the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011. As an amendment to the National Consumer Credit Protection Act 2009, which includes the National Credit Code, the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011 gives effect to the government's election commitment in relation to fairer and simpler banking policy. This amendment delivers on the government's election commitment to reduce the information asymmetry—the very one-sided information flow from lenders to consumers—that we have in the industry at the moment.

Mr Acting Deputy Speaker Adams, I know you are well aware of my electorate. As such, you are aware of the issue of housing stress that is currently of significant proportions there. It is not only housing stress that is of concern to people in my electorate. There is also the burden of genuine financial stress. People get in over their heads. Some will take the view that everyone is entitled to make their own decisions, and hopefully they make the best decisions. With this piece of legislation we are trying to ensure that people are provided with the information they need to make decisions—cutting through all the hype, the glamour and the glossy brochures that encourage them to borrow more—that are in their own interest and that of their families and that give them a debt they are able to manage.

It is a simple fact that currently in Australia there are approximately 15 million credit card account holders. Therefore we must strive to have the most efficient, streamlined credit card system to ensure that consumers are not left behind and left vulnerable. We must also aim to improve the consumer relationship, particularly with the banking system, through the elimination of excessive fees. This amendment introduces the requirement that lenders give borrowers a one-page key facts sheet for home loans. The aim of this facts sheet is to ensure that the borrower will have the best possible information when making that home loan decision. Australian families should be able to easily compare the deals offered by the big banks with those of their local credit unions and building societies. This is about transparency.

I must say, it was a vastly different situation when I went to get my first home loan. I recall going to one of the big banks, only to be knocked back. That is how I and my wife, Bernadette, ended up at the building society. Things have not changed that much. Therefore, we are trying to reduce the market capture of the big banks, allowing competition in the system and allowing people to know and understand the true position being offered by the respective financial institutions as well as the consequences and effects of that. As I said, this amendment is about transparency. It is about ensuring that there is clear and concise information available to the consumer. It is our objective to ensure that the consumers are not paying more interest than they should be.

It goes without saying that a home mortgage is one of the biggest financial commitments that most Australians will enter into in their adult lives. It is our responsibility to ensure that they are given the fairest possible deal or arrangement in coming to that decision. We understand that banks must make a profit and must remain profitable. That certainly underpins our economic system. But, at the same time, it is our responsibility to protect everyday families. They are not approaching this as bank executives. They are not sitting as equals at a negotiating table. They are, to some extent, taking what is on offer. We are just going to try to ensure through this piece of legislation that what they are shown as being on offer is written in common-sense language that is understandable such that a family can make a decision as to what is good for them.

The bill provides a balance between making banks and other financial institutions competitive and helping borrowers make the best decisions for themselves and their families. There is no doubt that consumers have a responsibility to be prudent. This does not absolve them of that. But, in short, we are trying through this legislation to give them more access to understandable information to help prudent decision making. We must ensure that they are informed not only about all the opportunities available through the various financial institutions but also, more importantly, about the financial consequences and obligations of entering into various contracts or mortgages.

In recent years the government has successfully streamlined and updated consumer credit laws. Australians now have uniform credit laws applying throughout all states and territories. That provides protection for consumers against unfair treatment. Now it is time to address the national credit laws. Under the proposed changes outlined by the amendment, lenders will be prohibited from sending invitations to borrowers offering increased credit limits. I have received those on many occasions. Anyone who on any occasion has taken out an interest-free loan or something like that knows that if you are disciplined and make the repayments there is no downside. However, if you are slightly less than disciplined—and by 'slightly' I mean missing one repayment or not paying on the exact day—you then incur a significant penalty at a higher interest rate.

One of the things that I have always found so terribly loathsome is the amount of material that you are targeted with by the lending institution in question by simply signing up for one commercial transaction. This seeks to discourage that practice but also to discourage Australian credit card holders from accepting such offers that encourage frivolous spending and mounting up a debt that unfortunately becomes unmanageable. I have been through that with my own kids. I am sure, with the number of credit cards out there—and I have already indicated the number of them—that many members in this place have experienced that too. At one stage one of my children decided to make purchases, and it was fine until they had to be paid back on a given day. I guess it does then fall to mums and dads to come in and help. Maybe this goes to helping mums and dads out a little bit in that process too. My child took this loan out. At the time she approached it from being a knowledgeable university graduate. But when you take these things out, unless there is self-discipline, it is very easy to be caught up in a situation where managing that debt eventually becomes more and more difficult.

As I said, this is trying to give consumers the information they need when they are making those decisions and also drawing their attention to how to make suitable judgment calls about the debt that they are going to have to try to manage. I spoke about being bombarded with the amount of literature you get on these matters. It is bad when you are being bombarded with what is effectively a sales pitch to take on more debt. They gloss it up and make it look more attractive but, at the end of the day, we need people to make decisions as to the management of their debt.

Under the terms of this legislation, lenders will not able to charge fees to customers who go over their credit limit. That is something that used to apply. You would get that in the mail and most people would just pay it. You might complain but mostly you would just pay it. This will now prohibit that from occurring. However, it can be reversed upon the express request of the credit card holder. This is actually transferring a bit of that power. It is putting the consumer in a position to say, 'I want to go above that credit limit,' as opposed to simply going above it and being caught after the event.

With this in mind, lenders will still be able to practise discretion when approving some payments above the credit limit, but this discretion will only be able to be exercised up to a buffer limit of 10 per cent of the consumer's credit card limit. This change to the system signifies an end to most credit limit overdraw fees. That will be a significant change for a lot of people. I understand that nationally it will mean a saving of $225 million annually. That is $225 million that will stay in the pockets of hardworking Australians. In addition to these changes, the government is moving to increase the regulation of lenders in relation to the warning to consumers about making only minimum repayments on their credit card accounts. Consumers need to be kept well informed about the consequences of making only minimum repayments and must be encouraged to make additional monthly contributions. More importantly, lenders will be forced to allocate the additional payments that are being made, in the first instance, to the credit card holder's highest interest debt.

For far too long the banks have had the upper hand. There has been a clear lack of transparency in the information flow between banking institutions and consumers, which has seen too many Australian families get trapped in bad loans and lumped with excessive credit card fees. This initiative gives some power back to individuals, helping them to make the best decisions with their hard-earned money.

I represent an electorate which is very much governed by the number of families who live there. A mortgage is, without doubt, the biggest financial arrangement that people in my electorate enter into. This bill will go a long way towards helping hardworking families make prudent decisions about their finances and helping them take all steps possible to ensure that they do not enter into a bad financial arrangement. I commend this bill to the House.

Teresa Gambaro (Brisbane, Liberal Party, Shadow Parliamentary Secretary for Citizenship and Settlement) Share this | Link to this | Hansard source

I rise to speak on the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011, and particularly mention that the coalition might also be introducing amendments. This amendment bill is a significant action by the government to address the complex regulations relative to the areas of consumer credit, including payday lending, credit cards, store credit, investment and small business lending, and personal loans.

The coalition holds a very strong view that our objective and commitment is to ensure constitutional soundness, particularly that implementation arrangements are in place for the referral of consumer credit powers to the Commonwealth by the states. We must all be assured that the national regulation of consumer credit by the Commonwealth provides a thorough and consistent administration that extinguishes the gaps and conflicts that may have existed under the current regime and that it addresses the shortcomings of the current system in protecting all Australians, especially the most vulnerable in our society.

Protecting consumer rights and meeting the needs of all Australians are essential in building a very strong social fabric. The coalition supports fair, open and competitive markets to provide the very best means of having an open, dynamic, prosperous and equitable society. Government needs to ensure that markets are fair, open and always competitive. We also support a more comprehensive regulatory regime. We support reducing the financial risk and disadvantage to Australian consumers entering into contractual arrangements for credit.

Potentially, the scope and influence of these new laws will affect the majority of this country's adult population. It is currently estimated that in Australia there are over 14 million credit-active individuals. Even people who have utilities—including electricity and gas accounts or mobile phones in their name—are active users of credit. For many people the use of credit is a stark reality in order to survive. They lead a hand-to-mouth existence, with very little margin for error in managing their financial resources. These people are well aware that they are constantly on the brink of, or a pay cheque away from, disaster.

In today's society it is becoming increasingly difficult to conduct day-to-day transactions without the use of a credit card. In the area of credit cards alone, Australians have a collective debt of a staggering $50 billion. More than two-thirds of this debt is accruing interest every day at an average annual rate of interest of 19.7 per cent—a near 20-year high according to the Reserve Bank. That translates to $7 billion a year paid in interest alone on credit cards.

There is very wide competition in the financial industry, with more than 174 banks, building societies and credit unions offering some form of high-street financial product. They are all vying for that very important consumer business. This legislation will no doubt result in significant changes in the way that credit providers and credit assistance providers conduct their business. It will also result in changes to the commercial practices of businesses involved in offering, managing and recovering loans and consumer credit contracts. However, there are some very serious concerns about the length of time that the government has provided industry with to comply with the new laws. They have provided very minimal time for industry to provide feedback and to comply with the new laws, particularly in light of the fact that a great deal of the detail in this bill has been deferred to regulation, which has yet to be released by the government.

This is all the more reason for the government to ensure that this legislation fully and adequately serves the purpose for which it was intended. It is anticipated, and it is absolutely essential, that the introduction of licensing, conduct, advice and disclosure requirements meets the needs of both consumers and businesses alike. This legislation must ensure that consumers are fully protected in their dealings with credit products, and credit providers must ensure that the legislation is clearly communicated and articulated to their customers. We also have an opportunity to liberate the market and encourage more stringent rules on access to credit, but also to cap the rates of interest that can be charged. The coalition holds the view that consumers' interests could be best met by measures which encourage competition within the banking sector, as opposed to the prescriptive regulatory approach for ad hoc issues.

The coalition stands by its call for a full root and branch review into Australia's financial system as part of the nine-point banking plan announced in October last year. There has not been a major review of banking since the Wallis review reported some 13 years ago. This side of the House supports the upgrading of ASIC's enforcement powers to eradicate unscrupulous and misleading practices. Responsible financial industry participants will undoubtedly regard this as an overdue and positive advancement in this area. This will be a challenging and complex undertaking as it covers all major financial institutions and major credit providers, including the banks, the building societies, the credit unions, the finance companies, the retailers and other businesses that offer credit arrangements, as well as the payday lenders.

With many Australians experiencing difficulties in meeting their financial obligations, we must ensure that public education and guidance is available to assist consumers in choosing a course of action when they are having difficulties with payments, which can result in a long-term effect. A consumer's credit history is a foundation of lender decisions and can make the difference between getting a good loan with excellent interest rates and getting a bad loan, declined applications or highly inflated interest rates.

The issue of access to credit for low-income earners is also of great importance. These people continue to require access to available credit and we must ensure that this legislation does not disadvantage this very important sector of the credit market. Often it is the financially disadvantaged in our communities who most need to access short-term financial credit opportunities or products. Within my own electorate of Brisbane, this is also the case for people involved in temporary situations such as those who are recovering from the recent Queensland floods and natural disasters. Some are still waiting for insurance payouts or grants from the government and really need to access these credit facilities desperately.

Whilst we recognise the need to regulate the credit industry to protect consumers from unscrupulous financial credit providers, the coalition is determined to ensure that the providers of the credit are not inhibited by bureaucratic and demonstratively overburdening legislation that denies credit to the people who need it the most. The coalition applauds the advancement of consumer credit reforms in line with the adoption of a national regulatory approach to important social and economic issues. However, we share certain concerns, particularly about ensuring not only that this legislation fully and adequately protects consumers but also that it is not to the detriment of credit service providers.

ASIC must provide the mechanisms for easy access to services such as dispute resolution, where consumers will have access to these services with location, procedural simplicity and affordable costs being absolute priorities. This legislation will have a major impact on any organisation or individual involved in providing, assisting with or enforcing consumer credit, including in areas such as consumer leases and credit for residential property for investment purposes.

Interest rates under the Gillard government have increased seven times since September 2009, increasing repayments on the average mortgage by $477 per month in a little under two years. The truth is the Gillard government has been forced into taking action on financial credit providers and is playing catch-up politics. The best thing that the government could do to provide immediate relief for homeowners and small business is to pursue responsible economic management and wind back its heavy debt fuelled spending to ease the upward pressure on interest rates.

It is our understanding that to implement this COAG decision over $70 million has been allocated over a four-year period and that this funding will be primarily for the establishment of the national licensing regime for providers of credit and credit facilities. ASIC will be the sole national regulator. What has not been identified in the proposed new national regime, however, is the cost associated to providers in procuring these new licences. Perhaps the Treasurer will answer a question at a future time relating to the envisaged costs to credit providers and whether there is a plan to recoup those operating costs over the years ahead with licensing fees. That really needs to be answered.

It would seem logical that whatever increased costs are placed on the financial or credit industry will be passed on to the consumer. We need to ensure that the new legislation does not provide an opportunity for financial businesses to use the legislation as a trigger or a reason to increase lending or credit fees. Australian banks have in the past few years increased the margins that they earn on credit cards, despite following the RBA's lead in other areas of financing. In the world of credit cards, most rate cuts by the central bank were ignored, with additional rate rises instead. Australians are acutely aware of the role of the banks in the escalating cost of credit facilities. Recent media articles and consumer surveys indicate that many Australians are becoming reluctant to increase their credit card debts.

This legislation also encompasses regulation of alternative credit facilities such as payday loans, which are becoming a popular alternative, offering small amounts of credit to those who would normally be ineligible for a credit card. A positive and encouraging trend is emerging with the increased use of debit cards, which are becoming far more popular. In fact, debit card usage has skyrocketed, with most consumers preferring to use their own funds to avoid building up any further debt. This growth in the preference for debit cards is due to the fact that, while they are restricting their credit card potential debt, Australians still owe a fair amount on their credit cards. Credit cards that attract interest rates of around 20 per cent are suggested as being of principle importance to those trying to repay in full, according to financial industry experts, while those on around nine per cent give consumers more room to move.

At a time when this country's tourism industry is working hard to encourage and stimulate our domestic tourism business, some credit card charges, such as those for airfares and taxi trips, incur usage fees by merchants of up to 10 per cent. These charges are further damaging Australia's reputation as an affordable tourism choice both domestically and internationally.

My home state of Queensland was the first state to implement a uniform consumer credit code, which was adopted by other states and territories. It is heartening to witness the coming together of different state and territory legislation and the transfer of financial services into a single, standard national consumer credit law for the benefit of all Australians.

The coalition calls on the government to refer this bill to the House Standing Committee on Economics, because the bill is an unsatisfactory response to perceived issues within the banking industry. We acknowledge that some elements within the bill are worthy of consideration, such as the changes to the hierarchy of payments under credit card contracts. The other sections relating to credit card reform seem to be poorly drafted, and there are industry concerns that have not been addressed. In addition, there are concerns over retrospectivity in relation to the bill applying to existing credit contracts. With further amendments and with properly managed implementation, this legislation has immense potential to have a beneficial effect on the credit and financial industries while ensuring the protection of Australia's consumers.

Craig Thomson (Dobell, Australian Labor Party) Share this | Link to 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.

Stuart Robert (Fadden, Liberal Party, Shadow Minister for Defence Science, Technology and Personnel) Share this | Link to this | Hansard source

Mr Deputy Speaker, I draw your attention to the state of the House.

Dick Adams (Lyons, Australian Labor Party) Share this | Link to this | Hansard source

In accordance with standing order 55(c), the House will be counted at 8 pm, if the member so desires at that time.

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

The House should pass this important legislation. We are in the unique situation that the opposition are supporting a bill which is in the interests of consumers. It is a rarity today to see them support anything. I commend the bill to the House.

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on theNational Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011. In his second reading speech on 24 March this year, the Treasurer said:

I announce new reforms to promote a competitive and sustainable banking system to give every Australian a fair go.

What the Treasurer failed to mention in his second reading speech was that one of the reasons we need reform to promote a competitive and sustainable banking system is as a result of the Treasurer's monumental blunder in approving the Westpac takeover of St George Bank in 2008. The Treasurer has no excuse. He was aided and abetted by the flawed and misguided advice from the ACCC, an organisation dangerously ignorant of the risks to our nation's long-term economic prosperity, by allowing markets to degenerate into the state of hyper- concentration. For while the test applied by the ACCC to approve a merger is under section 50 of the Trade Practices Act, it is no more than crystal ball gazing to guess if the merger will result in a substantial lessening of competition. The test that the Treasurer applies to such proposed banking mergers arises under section 63 of the Banking Act 1959, which provides that the Treasurer must take the national interest into account when considering such a merger. Simply, the St George-Westpac merger—the removal of St George Bank as an active and aggressive competitor in the market—was not in the national interest and the Treasurer abrogated his responsibility by allowing this merger. It is worth noting that even former Prime Minister Keating has made it clear that he would have never agreed to this merger, due its detrimental effects on competition. But this misguided decision from the Treasurer should not have come as any surprise, for we have seen time and time again that this government possesses the reverse Midas touch—from Ruddbank to GROCERYchoice, to winding back border protection, to the ceiling insulation scandal, the green loans affair and live cattle exports, everything this government touches turns to mush.

The long-term success of our economy and our future economic prosperity rely on increasing our nation's productivity. As history has taught us time and time again, it is small business that drives innovation and productivity improvements, not the big end of town.    As a former vice-chairman of the General Electric Company once noted:

Not a single distinctively new electric home appliance has ever been created by one of the giant concerns—not the first washing machine, electric range, dryer … razor, lawn mower, freezer, air conditioner, vacuum cleaner, dishwasher, or grill.

These were all created by small and medium sized firms. The success of small business depends upon the ability of small businesses to obtain finance and start-up capital. But when you reduce the number of banks in the market, as the Treasurer did by allowing the St George-Westpac merger, you reduce the number of options for small business to obtain finance and, in doing so, you undermine the long-term economic prosperity of our nation.

The history of business is littered with stories of businesses' successes after being rejected by bank after bank and finally finding a bank that would provide start-up capital and give them a go. I will give just one example. Almost every child in the world has heard of and loves Disneyland. Today, as well as Disneyland in California, there is Disneyworld in Florida and there are Disneylands in Hong Kong, Tokyo and Paris. Over one billion people around the world have visited a Disneyland. Disneyland is one of the great business success stories in history. Yet, when Walt Disney went to the banks to try to get funding for his very first Disneyland, he was rejected by more than 100 banks before finally being accepted. The top executives of the major banks turned Disney down because they thought no-one would come. Just imagine if, at the time, some misguided fool had swallowed, hook, line and sinker, the merger buzzwords of 'synergies', 'greater economies of scale' and 'improved efficiency' and allowed a series of mergers whereby Walt Disney only had four major banks to turn to—the current situation in Australia. The Disneyland that is known and loved throughout the world would never have come into existence.

We will never know what new products, new inventions and new jobs will fail to come into existence, killed before they were born because of the deluded theory which underpinned the Treasurer's allowing the St George-Westpac merger, thereby reducing the number of banks in the market which small business can seek to obtain finance from. We will never be able to compute the price that all of us will pay and how our standard of living will be lower than it would otherwise have been because of the Treasurer mistakenly allowing our banking sector to become more concentrated.

As the Treasurer scratches his head, befuddled as to why productivity in the nation has stagnated under his watch, he need look no further than the damage being done to our small business sector by our overly concentrated banking sector. History has shown time and time again that small business plays the leading role in the experimentation and innovation that lead to technological change and drive productivity growth. If you attack small business, as this Labor government has done time after time, if you make it more difficult for them to obtain finance, as this government has done, you will retard productivity growth.

Over the past few years, we have witnessed an unprecedented increase in concentration in our banking sector. The problem is not only the reduction in the options of small business to obtain finance; it is also the increasing interest rate margins that small businesses pay and the fees and charges that they are being slugged with. Figures from the RBA confirm that the big banks have now become parasitic on the small business sector. The banks are simply gouging small business on interest rate margins.

It is not only interest rate margins that small business are being gouged on. Late last week, we had the RBA release further data exposing how the banks are ripping off business, as these figures showed that the banks had massively increased fees and charges to businesses—by 14 per cent, to hit a record $6.87 billion—and this increase came despite business borrowing actually falling. So the banks are actually loaning less but they are taking more. This is the classic test of an uncompetitive market.

If the Treasurer wants to give every Australian a fairer go in regard to banking, he should be tackling the huge problem in our banking industry, and that is the penalty fees and charges imposed by the big banks. Although there has been a slight recent decline in bank fees charged to consumers, which the banks have made up for by slugging businesses, according to a 2009 report by Fujitsu Consulting, Australian bank customers pay the Western world's highest bank fees. The report's author states:

A lack of competition in Australia meant local banks were collecting $5 billion in fees from consumers, making them the most expensive in the western world.

The report's author goes on:

The average household is, in our view, paying up to $200 more each year than they should thanks to the wide range of fees and charges levied in Australia, and to the lower levels of competition in the market.

The real concern that this government should be tackling is that many of these fees and charges imposed by the banks are possibly unenforceable. It is a well-established legal principle that a contractual term—

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

Mr Deputy Speaker, I rise on a point of order. We have been going nine minutes on this contribution. The member has not addressed one issue in relation to this bill. He has not been on the topic at all. He has had a complete spray. It is time he was brought back to what the bill is actually about.

Dick Adams (Lyons, Australian Labor Party) Share this | Link to this | Hansard source

The honourable member for Hughes will address the bill.

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

I am talking about bank fees. The real concern is that many of the measures this bill proposes to regulate the fees and charges imposed by the banks are possibly unenforceable, for it is a well-established legal principle that a contractual term which requires one party to the contract to pay the other 'innocent' party a sum of money upon default or breach of that contract is only enforceable if it provides that the sum is a genuine pre-estimate of the loss or damage suffered by the innocent party. If the fee is inflated to a level where it does not represent a genuine pre-estimate of loss or damage suffered, it is a penalty and is unenforceable at common law.

In our democracy only the government can issue penalties, not the big four banks. The possible illegality of many forms of bank fees that this bill attempts to regulate is something that a well-resourced ACCC should have been looking at.

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

Mr Deputy Speaker, I have the same point of order. You have been very generous to the member. Far be it from me to defend the banks, but we have had a 10-minute spray against the banks. Not one part of this contribution has gone to what a very important piece of consumer protection legislation this is. It is time the member be brought back to what this bill is about.

Dick Adams (Lyons, Australian Labor Party) Share this | Link to this | Hansard source

The bill is the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011. I ask the honourable member for Hughes to address the bill before the chamber.

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

Thank you, Mr Deputy Speaker. This bill addresses the issue of bank fees and charges to consumers and that is the issue that I am addressing. The question is the possible illegality of many forms of these bank fees, and that is something that a well-resourced ACCC should have been looking at, especially remembering that Australian consumers pay the highest bank fees in the Western world. But, as usual, the ACCC were asleep at the wheel on this issue—and no wonder, because the ACCC have been more interested in spruiking government policy.

As if to highlight the inaction of the ACCC on bank fees and charges, the UK Office of Fair Trading, the UK's equivalent of our ACCC, have been taking an active and vocal role in standing up for consumers by dragging the banks through the courts to challenge the legality of many of their fees. While the ACCC have closed their eyes, one might ask: where is the government's minister on competition? It would help if this government even had a competition minister. Following the disastrous stints of the members for McMahon and Rankin as failed competition ministers, this government no longer even has a competition minister. So, despite all the problems we have with competition in Australia, with the grocery duopoly punishing consumers—

Dick Adams (Lyons, Australian Labor Party) Share this | Link to this | Hansard source

Order! I ask the honourable member to come back to the bill. The bill deals with credit card protection and matters dealing with information for consumers. It does not go to a lot of the points that the honourable member is dealing with. This is not an appropriation bill, on which a wide-ranging debate is allowed; it is a bill dealing with a narrower matter. I ask the honourable member to come back to the bill.

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

Thank you, Mr Deputy Speaker. This bill addresses the issue of fees and charges, how they should be regulated, how they should be listed and what information consumers could have about them, and they are the issues that I am addressing.

Since the ACCC and the government have dropped the ball on looking at and regulating these fees and charges, it has been left to a private law firm to run a class action test case seeking to prove that many of the banks' fees and charges that this bill seeks to regulate are in fact unlawful penalties that may have to be refunded. This case is already proceeding before the courts and involves over 27,000 individuals and businesses, holding 40,000 personal and business accounts, acting against the ANZ, attempting to recoup over $50 million worth of unenforceable penalties that the bank has gouged from consumers.

This bill simply misses the mark. It fails to address the problems in our overly concentrated Australian banking sector, a sector which has now become so highly concentrated and so big that the big four banks are all too big to fail, whereby they require special regulation to protect them from the forces of competition. This bill does little to improve a competitive and sustainable banking system and it fails in its aim to give every Australian 'a fair go'. It fails to address the gouging of small business and consumers by the banks. That is why it is correct that the bill was sent off to the House of Representatives Standing Committee on Economics and that is why the government should support the coalition's call for a root-and-branch review of Australia's financial system.

Mike Symon (Deakin, Australian Labor Party) Share this | Link to this | Hansard source

Unlike the member for Hughes, who has just spent 15 minutes talking about anything but what is in the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011, I speak in support of the bill. It is part of the Labor government's commitment to reforming the Australian banking sector. This bill will amend the National Consumer Credit Protection Act 2009 to improve competition and provide better support for Australian consumers. This bill will affect credit card and home loan providers, ensuring they provide better information to consumers, and the provisions detailed in this bill will limit some of the worse practices of the banking sector in these areas.

The RBA credit and charge statistics table Cl reports that in April 2011 there were 14,853,000 credit card accounts in Australia. In that month alone there were 2,108,000 cash advances, to a total of $811 million, and there were 126,383,000 purchases, with a total value of over $17 billion. Repayments for the month were $19.25 billion and balances of $36.39 billion were accruing interest—a huge amount when you think about it. The total credit limit in April 2011 for both drawn and undrawn credit cards was $134.9 billion. Families and individuals Australia wide rely on their credit cards to smooth out unforeseen costs and provide an important safety net. Credit cards for many people are a necessary part of their household budget and can be of great benefit. Some people do use credit cards wisely and are able to pay them off in time, and they see the benefit because they do not pay the fees, they do not pay the interest, but not everyone has that advantage. There is a danger that the consumer's level of credit card debt can exceed their capacity to manage it.

As a member of this House I—and, I am sure, many other members as well—quite often deal with people who are in these situations and I have to refer them to local services because of the dire straits they are in. In many cases it comes back to credit cards. In many cases the journey from sustainable to unsustainable credit card debt is being helped by the practices of Australia's banks. Consumers usually take on a credit card with a limit that they can cope with, a credit limit that enables them to deal with unforeseen costs and yet is manageable so that any debts accumulated can be cleared up in a reasonable time. At a later date, the consumer may receive a letter in the mail from the bank offering them a preapproved increase in their limit, and I am sure most of us have seen that many times. I have certainly received many such letters over the years. With a form such as that, all it needs is a signature. It can be faxed or mailed off and—bingo!—the credit limit has been increased, sometimes by many thousands of dollars and sometimes by even more.

For a family under pressure, if the bills are mounting and their credit card is getting close to its current limit, you pretty much know what is going to happen next. That form gets signed. It gets sent off. The new limit is in place and it is then used. Of course, the customer, the borrower, who has gone up to the max on the old credit card limit and has not been able to pay it off has even less chance of paying off a card with a higher limit.

Banks have been widely condemned for the practice of sending unsolicited invitations to increase credit card limits, and I think it is right that this bill addresses that. There are certainly some people in situations that can cope with increased credit card limits, but I think banks should also carry some responsibility when those are being offered.

A typical credit card interest cost is often more than 20 per cent per annum. For some cards it is less; they have different conditions. But there are certainly a lot of cards that have that rate or more. It only takes an outstanding balance of $10,000 on a credit card to see $2,000 a year go up in interest and not one cent applied to the amount that has been loaned via the credit card. Many people unfortunately fall into that trap and spend a large amount of their income paying off interest for purchases that in many cases they have already used or consumed. As we often hear, having large debts can have a devastating effect on families. Credit card debt can make people feel stressed, frustrated and overwhelmed and even leads to health problems. A lot of mental stress can come about from that type of situation with a tight budget.

Data from the Reserve Bank showed that total credit card debt in Australia was $48.6 billion in November 2010. At that time, there was a total credit limit of $133 billion. As I mentioned before, it has gone up slightly since then. Of that $48.6 billion in November 2010, 77 per cent was rolled over from month to month, as most people had not paid off their credit cards in full. When you think about that, that is 77 per cent of those cards having interest paid on them—lots of interest. Of course, it is the banks' right to charge interest; it is their product. But it is also a question of how people have got this credit available to them, and this bill addresses some of those issues. The growth in credit card debt over the past decade has been nothing short of spectacular. Just as an example, from January 2000 until July 2010 the total amount of credit card debt outstanding in Australia rose by 320 per cent. The continual rise in the level of credit card debt is a concern, and this legislation is aimed at helping consumers reduce their levels of debt.

For some local examples, I turn to a service I know rather well in my electorate of Deakin, because my electorate, just like every other electorate, is affected by people who get into financial trouble. Eastern Access Community Health, who have a social and community service based in and around Ringwood, in my electorate, also have a financial service there. They are very good at dealing with locals with financial crises and are able to put them on the right track. That service is funded with federal government support, which is a good thing. That started as part of the global financial crisis, back in 2009. The Labor government at the time provided $80.4 million of additional money for emergency relief and financial counselling which ran from 1 March 2009 until 30 June this year. In the electorate of Deakin this funding supported an additional two financial counsellors who were employed at EACH. As I said, they provide support for members of the community who may be experiencing financial difficulty.

The good news is that in the recent budget it was announced that the 77 full-time financial-counselling positions established during the global financial crisis will continue to be funded, with an extra $28 million over the next four years. That is a great thing for not only my electorate of Deakin but, as I said, everyone else's electorates, where these problems have arisen.

In particular I would like to mention Deborah Graham. She is one of the financial counsellors at EACH, and she advises that, in every case that she has dealt with of severe financial hardship, extensive credit card debt has been the problem. She advises me that, in all of her current cases, her clients started with much lower credit limits and that they increased their limits after they accepted unsolicited bank offers. One of the examples she provided involved an individual on a Centrelink income who has cards from three different banks with credit limits of $4,000, $2,000 and $4,000 respectively. In each case the bank offered to increase the limits of their cards from an earlier lower limit. Over a period of time the debts got higher until they got to the point where help had to be sought. It was unsustainable. The credit card debt spiralled out of control, past any ability of that client to pay it back on the income they were receiving. Deborah is now working with that client to help manage those debts, but it is not a situation that should become a matter of course. It should be the exception, and it should not be made easy to get into that situation. The message Deborah gave to me is that this legislation will make a real difference in helping to keep people out of financial distress. Banning the practice of unsolicited offers of extra credit limits will help people operate within their limits.

As well as banning the practice of unsolicited pre-approved credit limit increases, this bill will stop banks providing debt above the agreed credit limit and then charging penalties for this so-called service. As part of this reform the government recognises that lenders may need some discretion to approve certain payments which go over the credit limit, and I think that is valid if it is for an essential service. It is valid in the interest of a borrower to see that their gas or their power does not get cut off simply because it has been paid off with a credit card maybe at the wrong time of the billing cycle. Although the credit level will be able to exceed the total limit, this legislation will ban the current practice of charging a penalty plus interest for exceeding that limit. The interest will still be there, as I said before. That is money borrowed. The penalty for the bank is just cream on top. These types of penalties can be very frustrating for customers who accidentally exceed their limit. Many times there seems to be no correlation at all between the penalty charged and the so-called inconvenience to the bank. The two scales are way different.

For those who are in severe financial hardship, the removal of these penalty fees can help them gain control of their own debt and ensure the amounts they are paying are not spiralling out of control even further. Currently many banks will charge consumers anywhere between $20 and I am told up to $95 each month while the debt sits above the credit limit. These penalties make it even harder for people to dig themselves out of debt. The customer is often paying 20 per cent interest or more on the outstanding amount and on top of this they are incurring regular fees and penalties for exceeding their limit. The Reserve Bank of Australia, in its June quarter 2011 Bulletin, advised that fees on exceeding credit card limits, including late payments, totalled $301 million for the year to 30 June 2010. It is estimated that Australians could save around $225 million annually from the banning of fees and penalty rates for exceeding credit limits. Banning these fees will empower consumers to deal with their debt levels and not face additional costs at the time they can least afford it.

Another aspect of the National Consumer Credit Protection Amendment Bill 2011 is that it will require lenders to allocate repayments to higher interest debts first, so families do not pay more interest than they should. Currently, bank customers do not have any control at all over how their repayments on credit cards are allocated. Some credit providers allocate repayments under their credit card contracts in a way that can maximise the amount and time required for the customer to repay the debt on their credit card. The customer's money is often used to pay off parts of the loan which are actually only incurring low or sometimes even no interest. Each bank and each financial institution that issues cards has different conditions and quite often they have different conditions for different types of cards issued by the same institution. Many people simply do not understand what they are paying or the how or the why or the when as to which part of their debt is getting paid. Other countries have been able to bring in legislation to ensure that the highest interest rate debt is paid first. I think this is a great step forward that we are now proposing to do this in Australia.

Very importantly, on top of that, this bill will also make it mandatory for credit card statements to advise customers not to pay just the minimum amount, which is very easily done. The statement comes out and it has a figure on there. If you pay that you do not hear any more from the bank until the next month and you get another statement. But if you are paying the minimum amount your chances of paying off your loan from the bank are virtually nil. You will probably never get there in a working lifetime. The minimum amounts are very low.

Also contained in this bill is a provision that will make it mandatory for credit providers to provide a key facts sheet to consumers before entering a credit card contract. This change will allow customers to compare different credit card products more easily and have a better understanding of how to use their credit cards more efficiently. I would hope that minimises the amount they have to pay in both fees and interest.

In addition to introducing the key facts statement, this bill also runs in parallel with the reforms that are part of the federal government's commitment to reform the banking system and to promote competitive and sustainable practices. These reforms include the federal government's ban on mortgage exit fees which the Liberal and National parties are trying to torpedo this very day in the Senate, I understand. Banning exit fees on mortgages will help boost competition in the home loan market over time by giving consumers the ability to swap banks without facing the financial burden of exit fees. If the Liberals have their way, it will be families who get it in the neck, not the big end of town. I commend this bill to the House.

Scott Buchholz (Wright, Liberal Party) Share this | Link to 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—

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

Order! It being 8 pm I have to interrupt the member for Wright. He will understand. Earlier today the honourable member for Fadden drew the attention of the Speaker to the state of the House. In accordance with standing order 55(c) I will count the House if the member so desires. I invite the member for Fadden to indicate whether he requires a count of the House to be taken.

Stuart Robert (Fadden, Liberal Party, Shadow Minister for Defence Science, Technology and Personnel) Share this | Link to this | Hansard source

My desire has eluded me, Madam Deputy Speaker.

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

Surprise, surprise! I thank the member for Fadden. The member for Wright has the call.

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

Thank you, Madam Deputy Speaker. I was just alluding to the fact that the Australian Bankers Association articulated a concern that the banking industry had not been able to fully assess the potential impact or the likelihood of unintended consequences of the new rules. Predominantly, that was as a result of the time frame that they had to work with. Groups also broadly shared the concern that, as many of the substantive provisions would be included in this regulations, comprehensive comments on the policy detail were not possible at this stage of the legislation. Predominantly that speaks to the lack of substantial regulation included in this bill.

Often you will hear us, as the opposition, oppose. We oppose policy that is put up for a very good reason: often it is pretty ordinary policy. But on this particular occasion I am more than happy not to oppose it but to support it. I can see the intent. (Quorum called)While we have the members of the government in the House, this is the first time that we have actually supported a bill and you called a quorum. I was actually speaking for your motion. That is how disconnected you guys are from reality. It was bad policy, but I could see that you were having a go. I could see your intent.

Government members interjecting—

You guys have just absolutely lost it. For the first time you can no longer say no, no, no, no. You guys have just screwed this one. You have taken it the wrong—

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

The member for Wright is trying my patience. He will refer to the bill.

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

I am sorry, Madam Deputy Speaker.

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

The members will leave the chamber.

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

With 29 seconds to go I have shown my intent to support the legislation. However, sometimes the standard practice of this House is quite confusing to a new member.

Debate adjourned.