Geoff Lyons (Bass, Australian Labor Party) Share this | Link to this | Hansard source

I rise to speak on this very important piece of legislation, the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011. May I say from the outset that while some Australian families are struggling under cost-of-living pressures, it is obvious that the four big banks have no such worries, with Westpac, ANZ, NAB and the Commonwealth Bank all reporting record half-yearly profits recently.

This government is about fairness for Australian families. That is why we have introduced this important bill. We, the Gillard Labor government, are about fairness for families when making fundamental financial decisions. We are about putting power back into the hands of the people when comparing the products offered by financial institutions. People have the right to compare an apple with an apple—or, in this case, a lemon with a lemon—when searching for a new home loan or credit card, and many banks have been offering lemons when it comes to credit cards. Many Australian families are being crippled with credit card debt. With the grip of the global financial crisis, working families' households are increasingly trying to save and pay off debt. In January this year credit card holders payed back $18 more than they spent on new purchases for the month, compared with zero in February 2006. This government, through the National Consumer Credit Protection Amendment Bill, aims to further help Australian families get back in front.

In January this year the average balance outstanding on credit cards was $3,207, of which $2,403 was accrued interest. This amendment will require credit card providers to allocate repayments to the highest-interest-bearing debts first. In this way, a credit card user could save $360 or more per year, depending on their spending habits and credit limit. This means more money in the back pockets of average Australians. It is a measure the Age columnist John Collett described as 'excellent' on 16 March. For families in my electorate of Bass, this is very much welcome news. I am sure that is the case throughout Australia.

An important part of this amendment is the prohibition of unsolicited credit limit increase invitations. For many Australians, it is not uncommon to receive letters of offer for a limit increase. For families struggling with monthly bills, it can be very tempting to increase the limit. Inevitably, this leads to greater financial distress down the road when they are unable to pay off the full balance at the end of month or sometimes not even meet the minimum payment. This amendment will stop unsolicited credit limit increase invitations being sent to customers.

The average credit limit on credit cards has risen from just over $4,000.00 in 1994 to $8,953 in January this year. The decision by an individual to increase their potential financial liability should be taken seriously in response to a genuine need and ability to repay, not be spontaneously prompted and entered into as a result of opening their letterbox. These letterbox offers have been made by lenders without questioning the existing financial situation of the borrower. The borrower may have changed jobs three times or retired since getting the card. That sort of offer is irresponsible to say the least.

In this vein, the bill will require lenders to ask customers to nominate a credit limit when they apply for a credit card. Currently, card issuers may offer a limit that is far greater than expected or wanted by the customer. It then becomes an obligation of the customer to contact the bank and request a limit decrease. Upon contacting the bank, customers are often met by resistance in the form of retention units who try to convince customers that having a large credit limit is a good thing. Indeed, bank representatives encourage them to keep the higher limit for a rainy day, which can be a dangerous resort for families. This bill will put an end to that and put the responsibility back on the shoulders of big business, where it belongs.

This bill also sets out the circumstances in which borrowers can go over their credit limits. Currently, card issuers will often allow their customers to go beyond their credit limits and then charge them a fee for doing so. Credit card providers currently charge approximately $225 million a year in over-limit fees. The reforms will limit the amount these accounts can go over to 10 per cent above the credit limit at the discretion of the lender and abolish the fee when they do so. Abolishing these fees puts yet more money into the average family's coffers. This buffer is important to customers. For example, it is not desirable to have a direct debit for home insurance declined for the sake of a few cents, only for the property to burn down without coverage. Customers may be willing to give consent beyond 10 per cent by accepting the fees where appropriate. The difference, however, will be that this will be on an opt-in basis unlike the current opt-out onus placed upon the consumer. By the same token, some customers may not wish to have a buffer beyond the credit limit. These customers will be able to opt out. This amendment shifts much of the control back to the consumer, where it belongs.

This bill also makes it mandatory for credit card application forms to include a clear summary of account features. This is very important. The bill will require application forms to include a key facts sheet for potential credit card borrowers. It will become the right of consumers to be given the relevant information upfront about the credit card for which they are about to apply, rather than the current obligation placed upon them to find information. The key information will include the interest rate on purchases, cash advances and promotional offers, the annual fee and the other most relevant fees.

Going beyond the key features, the bill will also require credit card issuers to inform customers about the implications of meeting only the minimum payment on statements, such as ongoing interest payments and higher debts. Credit card issuers will also be forced to standardise their calculation of interest to allow the Australian public to effectively compare credit card products. Currently some banks calculate interest on principal, interest and fees. Others charge interest on principal and fees, while some charge interest on principal only. It is a mire of confusion for anyone comparing the interest costs associated with different card products.

The other facet of this bill is that it will be mandatory for banks and lenders to provide a facts sheet to potential borrowers so they can compare home loans. This is a good move and should lessen the confusion for borrowers who are buying their first home or refinancing. This bill gives Australians a fair go and creates a level playing field between the banks and consumers.

Australia's finance system today is the envy of the world. We did not feel the impact of the global financial crisis as strongly as other nations. Our actions during the global financial crisis got a lot of families through. This reflects both the hard work and experience of our regulators and the decisive action taken by the Labor government. The government took swift action to ensure our banks' access to global capital markets and to provide certainty for depositors across Australia. This ensured the continued flow of credit and, together with the Australian government's timely and targeted stimulus, helped infuse a sense of confidence in the Australian people.

Yet there is still more to do, and that is why we have introduced this bill. Australians deserve to have a better go with the big banks. The Australian people will not tolerate any bank abusing their place in the Australian economy because of their strength.

A measure I am pleased to note is the moneysmart.gov.au website, which provides plain English, unbiased information about finances. It aims to improve financial literacy and provide tools to help with budgeting. The Gillard Labor government wants people to be able to make better informed choices so they can take control of their finances. I encourage all Australians to visit moneysmart.gov.au and take advantage of this fantastic information and online tools which will help control finances.

We will keep looking for ways to make it easier for families at kitchen tables around Australia to balance the household budget. We know that there are challenges and opportunities for the times ahead—keeping the economy strong, pricing carbon and rolling out the NBN—yet we are moving in the right direction. I commend this bill to the House as it will make a real difference to Australians who are struggling with credit card debt. These measures are sensible and will provide a level playing field for Australian men and women.

Nola Marino (Forrest, Liberal Party) Share this | Link to this | Hansard source

The National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011 addresses some key issues in the use of credit in the form of home loans and credit cards. To be specific, it aims to ensure that credit card usage is not approved above the credit limit, except in certain circumstances, and to specify an allocation hierarchy for payments made under credit card contracts. It also requires credit providers to make the details of products available in a simple and convenient manner in a so-called key facts sheet.

These and other changes are proposed because the government is concerned, and rightly so, that credit can become a burden on citizens. But I find it really quite incongruous that it is this government that is expressing concern about the ability of Australians to manage their debts when it is this Labor government that has itself wallowed in debt—in fact, the highest debt in Australia's history. This Labor government is apparently concerned about people going too far into debt but will force a total public debt of $107 billion on the Australian people. It is this Labor government that suggests limiting additional borrowings on the credit cards of Australian citizens that is itself borrowing $135 million a day. It is this Labor government that wants to ensure that repayments Australian citizens make go to paying off first the debt with the highest interest rate, while at the same time leaving the Australian public footing an interest bill of $18 million a day to pay for Labor's debt splurge. I understand the intent of this bill, but the government should be applying these principles to its own management of the Australian economy. It is a case of taking the log from your own eye before pointing out the splinter in another's.

This bill seeks to prevent credit card debt being extended beyond initial limits except in 'certain circumstances'. That might be a good idea for the Australian government as well. What would 'certain circumstances' include for a Commonwealth government? This government, as a part of the budget process, is increasing the credit limit it gives itself.

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

The member for Forrest is labouring the analogy a bit much, and she can come back to the bill before us.

Nola Marino (Forrest, Liberal Party) Share this | Link to this | Hansard source

Certainly, Madam Deputy Speaker. We do know that, in extending the credit limit, the government wants to raise that to $250 billion and in the process to define and get rid of special circumstances. That has happened at the same time that it has dumped the need for the special circumstances for itself but not for the voters. The government is refusing to apply to itself the same principles of accountability that it is willing to enforce on people through this bill.

Looking at the bill in more detail, the proposal to have credit institutions develop a key facts sheet on credit products has some merit. Many of them currently provide this information in an open and honest manner and standardising this across institutions would make comparisons easier. But I wonder what such a sheet would look like for the government.

The DEPUTY SPEAKER: The member for Forrest has been warned. She will go to the bill before her.

And I have, Madam Deputy Speaker. The bill prohibits credit providers from making unsolicited invitations that encourage consumers to increase their credit limits, except where the consumer has consented to receive such offers. Many of us have received in the mail those 'you have been approved to go further into debt' letters, especially during the credit gluts of the 1980s and the early 2000s. Your mail on that day might have offered to double your credit card limit and also have been full of unaddressed brochures on the things to spend that extra credit on.

While reducing the number of these offers going out, we should be looking at alternative ways to prevent people going too far into debt. This probably needs to start when we are younger. Many young Australians leave school with the legal capacity to go into debt but not the training to understand and manage that debt. Indeed, many college and university graduates are highly skilled in the technical fields they studied but are horribly ignorant of the financial facts that might keep their businesses open and themselves out of bankruptcy. It is this lack of economic education which is, to my mind, one of the prime reasons for the economic hardship faced by so many young Australians today.

I am sure that the government would agree that having some debt is not a problem if you can manage it and repay it comfortably. The secret is to control the debt before it controls you. I am afraid that this has not applied to the government itself. The government at last has responded, through this bill, to industry concerns and provided amendments at this late stage. These eleventh hour amendments have certainly responded to industry concerns. However, the need for a full review of Australia's financial system, as is part our nine-point banking plan announced last year, certainly would not go astray.

Deborah O'Neill (Robertson, Australian Labor Party) 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. An often overlooked achievement of the Gillard government has been the COAG national reform agenda in the areas of consumer credit and personal property securities. This bill and the National Credit Code are significant economic reforms. They seek to improve and streamline the regulations concerning consumer credit and provide for a national regulatory system. This government has already achieved the implementation of Australian credit licences, responsible-lending provisions and a comprehensive National Credit Code. These reforms have achieved the important balance of enabling consumers to access needed credit while ensuring that credit providers are responsible in their provision of that credit.

The responsibility of financial institutions and other credit providers in providing credit has been an issue of global significance, arising particularly in the context of the global financial crisis. An outcome arising from the GFC is that governments do need to provide appropriate regulation governing the provision of credit. While Australian regulations have largely been much more appropriate than those in nations, such as the US, that were much more affected by the GFC, needed improvements were identified here in Australia.

One key reform by this government was the introduction of Australian credit licences, which ensure that credit providers cannot escape accountability due to different licensing requirements in different states. Additionally, the responsible-lending provisions that were established by this government once and for all provide a national standard of responsibility for credit providers. Also, the establishment of the National Credit Code, replacing the state based Uniform Consumer Credit Code, was a triumph of cooperative economic reform by the states, working with the Commonwealth under our leadership. I sincerely hope, given the change of government in New South Wales, that these reforms that are vital for a truly national economy can continue.

This bill represents the next vital step in providing for a culture of responsible lending in this country. It concerns issues including credit limits, how credit providers manage higher interest bearing debts, and the provision of important information to consumers on home loans. All these are fundamental in providing for a culture of responsibility in the provision of credit.

One component of this bill which I am particularly pleased to support is the prohibition of unsolicited credit limit extension invitations that encourage borrowers to increase their credit limit. From evidence he gathered during the inquiry of the Standing Committee on Economics, which he chaired, the member for Dobell gave a very colourful illustration of the impact of this practice on Australian families. The exception in this measure is where the consumer has provided informed consent for such offers to be made. I understand that we should consider the argument that it is up to the individual to responsibly manage their financial security. What this House needs to consider is that some consumers, particularly young people, can misjudge or make poor decisions about their personal finances. Similarly, families under financial pressure can turn to credit cards and never recover. This legislation is not intended to deal with this situation by providing for stringent regulation that stifles free enterprise. Rather, it promotes a culture that ensures that credit providers act in a responsible and considered way. The global financial crisis demonstrated that the irresponsible provision of credit by financial institutions is a reality and it can have dire economic consequences.

My electorate of Robertson has a high population of families and young people below the age of 25. I know I have spoken about the demographics of my electorate in previous speeches; however, the Central Coast does have a unique demographic make-up and it represents a mortgage belt area. Many of the young families on the Central Coast have sizeable mortgages. We are a region, but our proximity to Sydney means that there is considerable financial pressure on the families who live in the Gosford and Wyong local government areas. Additionally, many of these families, like families right across Australia, use credit cards provided by a bank or an alternative financial institution.

The decision to purchase credit is an individual one and it is determined by the individual in concert with a responsible credit provider. In relation to credit cards, however, I believe that it is fundamental that the government play a significant role in ensuring that credit providers are actually responsible. The ability of a bank to merely send out letters to individuals holding credit cards and increase their credit limit can be characterised very easily as an incredibly irresponsible practice. It occurs nonetheless, because the risk of any individual defaulting on their credit card is seemingly less of a concern than the potential profit that might be made by the bank or credit facility adopting such a practice.

Often the consumers targeted with offers of a higher credit limit from the banks are those more likely to be experiencing financial difficulty due to high levels of unsecured debt. The level of unsecured debt of many young people is very concerning. Statistics demonstrate that the level of unsecured debt amongst youth is higher than in other age brackets. On a number of levels this is perhaps to be expected, but it is certainly not a desirable outcome. Often younger people require access to unsecured credit to enable them to start out in life. Despite this, a variety of reports indicate that debt problems are significant, particularly amongst youth. Requiring lenders to ask consumers to nominate a credit limit when they apply for their credit card means that consumers have power at that point to determine their limit. Lenders, however, will not be able to make unauthorised offers to consumers encouraging them to increase their credit limit. (Quorum formed) This represents a step towards providing a more responsible culture of credit provision between lenders and consumers.

This bill contains other important provisions which will assist in the development of an improved culture of responsibility in the provision of credit. One is the requirement for lenders to inform customers about the implications of early repayment of minimum amounts when receiving their statements. Even paying just a small amount extra over the minimum required can make a large difference to the interest charged. The provision of this information to many consumers, especially to young consumers, would be immensely beneficial in enabling them to plan and to more effectively manage their finances, while developing their financial literacy.

While some school students learn about financial management at school or from their parents, it is sadly a reality that many young people learn about financial management from unfortunate experience. We need a culture where credit providers do not exploit the financially inexperienced young borrower. We need a culture where consumers, particularly young consumers, are well informed of the implications of borrowing. An additional way in which this bill seeks to implement this objective is by mandating that a key facts sheet be included with new credit card application forms. This will provide much-needed information to new borrowers, including the relevant interest rate and fees. It is always better for a consumer to be aware of this information before they make a credit commitment. Whilst some, including those opposite, would be quick to argue that this is a matter for individual responsibility, lenders should not be allowed to take advantage of inexperience. It is the ethical path to provide for a culture of responsible lending.

I sincerely believe that this bill will improve the means by which credit is accessed and will ensure that lenders provide their services in a more responsible manner. Whilst this bill predominantly affects credit cards, there are also embedded in it improvements in relation to responsible lending for home loans. As part of the Gillard government's banking package, lenders are to provide consumers with a key facts sheet with each new standard home loan. I understand that this differs from credit cards in that consumers purchasing a home loan generally do so after considerable deliberation. Certainly, consumers report that the key facts sheet is an extremely useful asset when attaining a home loan because it allows consumers to easily compare home loans. The provision of this means of easy comparison demonstrates that this government is committed to ensuring that consumers are able to make major financial decisions that are to their advantage. The key facts sheet is a means of breaking down the information imbalance that many customers face when they are dealing with a very powerful financial provider. By receiving the information that they desire in an accessible form, consumers can feel more confident about the decision they make in regard to a home loan. Choosing a home loan is often one of the most important decisions a family will make, and choosing the wrong loan can be very expensive. Only one-half of one per cent extra in an interest rate can increase the cost of a $250,000 loan by $30,000 over 20 years. For these reasons, the provision of a key facts sheet is a vital reform.

This legislation demonstrates once again that competition and consumer reform are Labor words. Indeed, whenever competition and consumer law reform has been required, it has been a Labor government that has implemented it. This is a predominant reason why I am very proud to stand up in this chamber and affirm the Labor Party's credentials as a superior manager of the economy. It was a Labor government that introduced the Trade Practices Act, ushering in a new era of competition and consumer law. It was a Labor government that lowered tariffs and floated the Australian dollar, positioning Australia to take its place in the global market. And it is this government that has committed itself to providing the legislative framework for a truly national economy. This is demonstrated with the new Competition and Consumer Act, the Personal Property Securities Act and the National Consumer Credit Protection Act. This government recognises the central role of the provision of credit in providing for a healthy national economy.

I was alerted to the importance of responsible credit provision when I was provided with information by a local consumer action centre. It was the story of a gentleman who was passing through my seat and sought our assistance to repair a caravan, which was also his home. He informed me about the very real problem in his own life of payday loans. These unsecured loans, on which interest at annualised percentage rates anywhere from 300 per cent to 1,000 per cent can be charged, are simply a disgrace. Such lenders target consumers who are generally considered uncreditworthy by mainstream lenders. This situation demonstrates that action needs to be taken in regard to irresponsible lending. I believe that this legislation does so, and I commend the bill to the House.

Steve Irons (Swan, Liberal Party) Share this | Link to this | Hansard source

I rise today to speak on the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011. When the Treasurer introduced this bill, on 24 March this year, he stated early in his speech that the government was introducing three broad streams of reform: to empower consumers, to support smaller lenders and to secure the flow of credit to our economy. If you dissect those words you will see that the emphasis on the reform to empower consumers to support smaller lenders gives the perception of a government introducing a bill that gives a commercial advantage to one part of a business sector over another, which just reeks of legislative bungling.

Australia has an economic structure that enforces level playing fields right throughout the business sector, which some refer to as the Trade Practices Act. Many companies and businesses have been prosecuted under this act for creating, or through collusion forcing, a commercial advantage over competitors or fixing prices to customers. It is illegal to do so and is now a criminal offence. But here we have the Treasurer openly stating that he wants to introduce legislation that gives an advantage to a particular part of the banking sector so that customers will leave one part of the industry and go to another. This is typical of this Treasurer and this government. Every time they try to legislate for business they get it wrong, and this is just another example. It reminds me of the Brian Burke days in WA, and we saw what happened when Labor went anywhere near business in those days.

If this bill does achieve a fairer and simpler banking policy that does not contravene the Trade Practices Act then it should be supported. The bill comes before the House in the context of Australians using credit cards more and more, year after year—to be precise 428 per cent more, according to Euromonitor International, between the years 1998 and 2009. This growth in use has translated into a significant national credit card debt. In April 2011 the Reserve Bank of Australia estimated that there was $49.4 billion of credit and charge card debt in Australia, almost $36 billion of which was accruing interest. The actual liability, including credit and charge card limit, was estimated at $134.9 billion. Australians could borrow that amount of money if they needed to, just as this government borrows money.

Australia's credit card expenditure ranks high among nations. In 2009 our per capita expenditure was higher than countries such as the US, Canada and Hong Kong. We overtook the US in 2004 and have not looked back. But what does that mean for the country? I do not take the view that credit cards are a necessarily evil. The majority of Australians use them wisely and credit cards can assist with meeting day-to-day expenditure. However, the administration of these cards by banks has come in for criticism in recent times, and the charge has been levelled at banks that they are siphoning money off consumers at unacceptable rates. High interest rates and harsh penalties for breaching credit limits are two mechanisms which have been criticised by consumers, including many people in my electorate of Swan.

I am pleased that we are finally in a position where the government has introduced some legislation to be debated in the parliament. However, it is shameful that it has taken the government so long to consider this matter in detail. It has taken the persistent campaigning of the coalition and the shadow Treasurer to get to this point today where there is legislation before the House. The resulting legislation is an unsatisfactory response to the perceived issues within the banking industry. The requirement in the legislation for lenders to provide a one-page facts sheet stems from a policy that was announced by the Treasurer during a heated debate about the practices of the big banks towards the end of last year. The coalition had announced its nine-point plan for banking reform. The Treasurer was caught out, his inaction exposed and he quickly announced that he would solve the problem by requiring lenders to provide a key facts sheet for standard home loans.

These facts sheets may well be a good idea. Allowing consumers comparison between home loans is a worthwhile step. However, can a facts sheet really be considered a serious response to issues in the banking industry? And as usually is the case with policy on the run, this has created problems at the legislative stage and the government has had to remove the strict liability offences applying to the section of the amendments on the advice of the industry. I could go on to highlight these amendments but enough of my colleagues on this side of the House have already taken the Treasurer to task on this issue. To accommodate changes, this measure that was initially set to apply from 1 September 2011 has been extended to 1 January 2012. This does appear to be another example of a government that announces things before it has worked out any of the details.

As the Treasurer outlined in his speech, this bill also deals with issues relating to credit cards and I want to discuss the potential impact of these measures now. The bill provides for the introduction of a 10 per cent credit limit buffer, which can be broached without incurring fees. Consumers will be able to opt out and will be given the opportunity to request a larger buffer if they are prepared to pay for it. We note that the government has chosen to remove sections relating to the default buffer limit at 10 per cent of the credit limit, as well as the allowance for a supplementary buffer. There was some concern from industry bodies and institutions that the bill would send a message to consumers that they have a 10 per cent higher credit limit than previously stated.

The government has replaced this with a requirement for consumers to be notified if a credit card breaches the limit. The bill also provides for warnings on statements to consumers about the dangers of only paying the minimum repayment. It combines this with a requirement for an allocation hierarchy of payments, whereby lenders will allocate higher repayments to higher interest debts first. These seem reasonable. There is some concern however that the provision to restrict unsolicited offers to consumers to increase their credit limit will have the unintended consequence of forcing credit providers to push borrowers towards higher initial credit limits than they would have otherwise been offered. It is these sorts of concerns which demonstrate that the government is only scratching the surface of this issue, in typical knee-jerk reaction to public opinion. Contrast this approach with the coalition's nine-point plan on banking reform, which is:

1. Investigate anti-competitive banking practices

2. Investigate unnecessary banking risks

3. Ensure regular reporting of bank interest margins

4. Ensure more Government support for small lenders

5. Improve the liquidity of mortgage-backed securities markets

6. Simplify the Financial Services Reform Act

7. Commission an investigation of banking loan practices for small business

8. Commission a resolution to the debate about whether banks should be able to issue covered bonds, and

9. Conduct a full review of the financial system.

This is a serious strategy for dealing with these matters, unlike this government's rather shallow so-called reforms. In conclusion, I will not oppose this legislation as there are a couple of sensible suggestions in there.

Bernie Ripoll (Oxley, Australian Labor Party) Share this | Link to this | Hansard source

Oh!

Steve Irons (Swan, Liberal Party) Share this | Link to this | Hansard source

I hear the member for Oxley is surprised at that.

Bernie Ripoll (Oxley, Australian Labor Party) Share this | Link to this | Hansard source

I am pleased.

Steve Irons (Swan, Liberal Party) Share this | Link to this | Hansard source

That is good. However, this legislation has again exposed the policy problems that this government suffers from—announcement of policy on the run, not thinking through the details and having to make amendments as a result. Unsurprisingly, therefore, this is a fairly superficial attempt to solve serious issues and the government should be looking towards the coalition's nine-point policy proposal to make our banking system stronger, safer and fairer. Australia's credit card debt will remain internationally high and the public policy implications of this need to be properly considered by a responsible government.

Bernie Ripoll (Oxley, Australian Labor Party) Share this | Link to this | Hansard source

I thank all members who have spoken on this bill, particularly the last member to speak, the member for Swan, and reassure the House and everyone listening that the opposition are supporting these reforms and this very good legislation—the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011 and the National Consumer Credit Protection Act 2009. These are good reforms. They follow a range of serious reforms which this government has taken on, after an absence of almost 12 years when the opposition were in government of dealing with some of the serious reforms needed in financial services. The reforms look at banking competition, the advice sphere and superannuation—what we have done in the Cooper review—for the next 20 years. In the past 20 years we have seen super grow to become the basis of our national savings. Over a trillion dollars worth of savings in this country helped support us through the global financial crisis. Whether it is credit reform, consumer protection or competition in these areas, Labor has taken on these serious and challenging reforms. So it is good to hear that members opposite will be supporting these very important reforms.

This legislation follows through on our election commitment to crack down on unfair treatment of Australians who use credit cards, to make sure they get a better deal out of our banking system. In the end, we are all tied in together—the banking system, consumers, credit providers. Everyone needs everyone for the system to work but it ought to be a fair system that delivers a quality product to people.

In Australia, there are 15 million credit cards out in the market, almost a credit card for every man, woman and child in the country—certainly one for everyone over 18 years of age. So there is a fair bit of credit out there. I heard earlier criticism about our comparatively high credit levels compared to other countries. From time to time that may be the case. I have spoken in the past about unsustainable levels of credit, but a curious thing has happened in the last few years—that is, average credit card debt has fallen. People are beginning to get the message. They are saving and paying down their credit cards, being responsible in their use of credit. Our responsibility in this government and this parliament is to make sure that we give them the support they need in return—to make sure that the regulatory frameworks are right, that the banks and credit providers are doing the right thing, that credit is provided to those who can afford to repay it, that it works in the right way and that we support competition in these areas.

As most people would know, the average family has more than one card; it has multiple cards. The majority of families use that credit responsibly. Credit can be a very important means for ordinary people to give themselves a good lifestyle and to manage the creation of wealth. No-one buys a house with cash. People buy houses on credit. There are ways that people can manage good credit for good reasons, build their wealth over a period of time and create for themselves a good lifestyle and a retirement income for when their working lives come to that point. It is okay to have credit and it is okay to have a credit card, as long as people understand their responsibilities, as long as it is something that they can manage properly and as long as they are not being taken advantage of. That is the key thing when we look at the principle behind these reforms. We want to make sure that people do the responsible thing, but we also want to make sure that banks and credit providers provide an assurance of responsibility when they provide credit to people. (Quorum formed)

I thank all of my colleagues for taking the time out of their busy schedules tonight to come and listen to me speak. I put on the record again that these are great reforms. While we hear the criticisms of the opposition, the opposition will actually be supporting this legislation, because deep down they believe this is good legislation and the government is doing a good job. When it comes to financial services reform and consumer protection—whether it is in relation to banking competition, banking exit fees, credit card limits or other necessary protections for ordinary working people—this government takes the hard decisions and makes the reforms. I thank the opposition for supporting this very important legislation.

I have very little time left, given that the opposition finds it necessary to continue to cut short our contributions, but in this legislation we are banning unsolicited offers to increase credit card limits. I think this is an acceptable reform. People do not need to be offered unsolicited increases to their credit card limits. They should be adult and responsible enough, if they need further credit, to apply for it themselves. It has been too easy for banks and lenders to, in an unsolicited way, encourage people into higher credit limits and even into debt.

This legislation also prevents lenders charging fees to customers who go over their credit limit, unless they have expressly asked for this particular service. There are a range of ways to ensure that consumers, while getting good access to credit, are protected from some of the worst aspects of credit, particularly the high interest that some providers charge on credit card debt, the high credit card limits and the fees that are charged. We also want to make sure that there are warning statements about making minimum repayments so that people understand that, by only making the minimum repayment, they potentially put themselves in a revolving door of credit and may never actually pay that credit off. If you calculate what you are actually paying over a number of years, the numbers are phenomenal. People ought to be aware of the pitfalls of having revolving credit card debt which you never pay. It can be worse than having a mortgage in the length of debt and the amount you pay back in fees and interest charges.

This legislation does many things to protect consumers in the area of home loan exit fees, providing more competition and giving people more ability to choose. It also provides for a one-page home loan facts sheet which will give people access for the first time to real information, restoring the power equilibrium and making sure that they know what their home loan is about, exactly what their responsibilities are, what the terms and conditions are and how much they will be paying. It will give them power for the first time to be in control of their own credit and debt.

I thank all the members who have spoken on this legislation. In conclusion, I can say that it is very good legislation. It provides for competition. It provides for choice. It provides for consumer protection. It is part of a suite of financial services reforms and changes that this government is making. I recommend the legislation to the House.

Anthony Albanese (Grayndler, Australian Labor Party, Leader of the House) Share this | Link to this | Hansard source

Mr Deputy Speaker, on a point of order: there is a Business Council of Australia dinner upstairs that has been disrupted on a number of occasions by petty childish pulling of quorums by the opposition. There is also an Australian Local Government Association dinner that has also been disrupted due to petty, childish negative politics from those opposite—

Bruce Scott (Maranoa, National Party) Share this | Link to this | Hansard source

Order! The Leader of the House will resume his seat. That is not a point of order.

Bruce Billson (Dunkley, Liberal Party, Shadow Minister for Small Business, Competition Policy and Consumer Affairs) Share this | Link to this | Hansard source

It was nice to have that little warm-up before I had a chance to speak for a few minutes on the bill before the House.

Mr Albanese interjecting—

Mr Pyne interjecting—

The bill before the House, being debated amongst the cacophony of exchanges in the House, is the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011.

Bruce Scott (Maranoa, National Party) Share this | Link to this | Hansard source

Order! The Leader of the House and the Manager of Opposition Business will stop shouting across the table. The member for Dunkley has the call. The Leader of the House will cease interjecting across the chamber. If he wants to have a discussion he can go outside.

Bruce Billson (Dunkley, Liberal Party, Shadow Minister for Small Business, Competition Policy and Consumer Affairs) Share this | Link to this | Hansard source

As I was saying, the debate relates to the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011. The bill is something that the opposition will not oppose. We see some merit in many aspects of the bill and we will be supporting its passage through the parliament. The bill essentially seeks to change the National Consumer Credit Protection Act 2009 to require licensed credit providers to do a number of things. These include providing to customers key facts sheets for standard home loans. These outline not only the scale of the loan but the quantum of payments and the overall costs of the home loan the consumer might be considering entering into. There are also to be key facts sheets for credit card contracts on a similar basis: the costs and responsibilities are outlined there so that consumers can make informed decisions.

The bill will also restrict unsolicited invitations to borrowers to increase the credit limit on their credit cards. This is an interesting measure within this bill. I am sure many of us in this House remember a time, when credit was abundantly available, when we could barely get through a week without having our credit card provider offering some Herculean increase in the credit limit, or even credit card providers with whom we had no association—perhaps they had sourced our names off some database somewhere—very generously offering credit cards with significant credit limits.

I can understand the temptation that those spontaneous offers of credit may represent for some people, particularly those facing some financial distress. You can see the connection between financial hardship and even in some cases the very viability of households when there is this revolving door of credit coming from multiple credit offers, unsolicited, from credit card providers.

The bill also seeks to prescribe rules for the use of credit cards above credit limits where there are transactions that peak out over what is euphemistically known as the 'maxed out' credit card, what occurs when those credit limits are exceeded and the arrangements to be entered into by agreement between the credit card holder and the credit provider. The bill also provides for an order of application of payments made under credit card contracts.

Essentially, these measures came out of some of the Labor Party's comments in the 2010 election. They related to a number of measures, including the regulation of issuance limits, fees and charges and product disclosure requirements of credit cards in order to enhance the protection of consumers. This was spurred on somewhat by a very important public policy comm­itment that the shadow Treasurer, Joe Hockey, made in outlining the coalition's nine-point banking plan. So persuasive were those nine points, despite the government's efforts to ridicule this forward-looking plan for our banking sector, that the Treasurer, Wayne Swan, quickly announced some of the measures that the coalition had outlined. So they clearly were not poor ideas, as Labor tried to outline. They were of such quality that the government tried to make them their own. Some of the measures in this bill carry forward the announcements in the nine-point banking plan of the coalition shadow Treasurer, Joe Hockey.

A couple of them are of particular interest to me, certainly the ones relating to price signalling. Interestingly, the government had never mentioned price signalling and a need to expand the powers available to the ACCC until the coalition started talking about it. In fact, the private member's bill that I introduced on behalf the coalition must have poked the government in the side to such a proportion that they quickly went about trying to create a bill of their own—a 'mine is bigger than yours' routine. I hope the parliament will consider before the week is out that the coalition's price-signalling bill is a product superior to the government's one and we will get the chance to debate that at some time.

Ms Catherine King (Ballarat, Australian Labor Party, Parliamentary Secretary for Health and Ageing) Share this | Link to this | Hansard source

You're kind of pleased about that.

Bruce Billson (Dunkley, Liberal Party, Shadow Minister for Small Business, Competition Policy and Consumer Affairs) Share this | Link to this | Hansard source

I am kind of pleased about that. I thank the parliamentary secretary at the table for recognising that I would be heartened by that very objective and balanced appraisal of the two legislative proposals before the parliament. I was very pleased to read that some thought my bill was better than yours. Think of our extensive resources in the opposition compared to the tens of thousands of public servants available. Isn't it remarkable that quality can still emerge in the public policy debate despite that kind of resource imbalance. Needless to say, the bill before us deals with some of those policy announcements. The bill did have some unbecoming features, one of which, as my colleague touched on earlier, was a sort of process of consultation just to tick the box but with no meaningful engagement with key stakeholders. A very rushed consultative process meant that the bill came into the parliament with a number of flaws in it. Even though it is the government's own bill, the government is having to amend it. Having not done the homework properly, and not engaged in a genuine consultative manner, it now has to amend its own bill. I am pleased that those amendments are being made, because a number of those amendments improve the bill, but it does highlight that there were some unsatisfactory provisions. Thankfully, the banking industry engaged and the government has taken some notice of it.

Those elements within the bill that are worthy of consideration are certainly the hierarchy of payments under credit card contracts and other sections relating to credit card reform. Although poorly drafted, I think the ideas were quite reasonable, and the coalition has been constructive through the House Standing Committee on Economics in addressing some of those points. Industry has also, I think, taken its salvation in the House economics committee. At least someone was listening to its concerns and, through that slightly truncated process at the eleventh hour, the government has decided that there was some merit in those points from industry and has put forward some substantial amendments to the bill. It is a tad embarrassing for the government, but I hope it is an insight into proper consultation processes, because there are many stakeholders out there on this perpetual merry-go-round of consultations approaching them with goodwill, lots of resources and plenty of insights, only to feel like there is nobody listening. At least the committee process of the parliament can pick up some of those insights.

The key facts sheets for the standard home loans were originally set to apply from 1 September 2011. Clearly that was a very tight time frame. Following consultations with industry, that time frame has now been stretched out to 1 January 2012, albeit in an eleventh-hour amendment. The proverbial duck's legs were going very quickly as people were preparing for that start-up date. There now is a little more time to make sure that can be done properly, although there is some hope that the minister will finally release the regulations that will prescribe what needs to be in those key facts sheets. That was supposed to be in late June; we are certainly in late June. Let us hope that is not too far away; otherwise, the value of that extension will be undermined by the government's own inactivity. In its amendments, the government has also chosen to remove the strict liability offences which apply to this section. That is a concern that was consistently raised by industry and key institutions.

In the credit card area there are a number of changes to lending terms and prescribed rules for the use of credit cards above the credit limit. Other colleagues in this place on both sides have talked about a default buffer limit of 10 per cent above the approved credit limit as well as an allowance for a supplementary buffer. How these things will work through in practice will be quite interesting. My concern is that consumers might think that all of a sudden their credit limit has simply gone up by 10 per cent rather than it being a buffer designed to guard against punitive fees and the like, or higher interest rates, that are imposed and that may well not be expected by customers if they do happen to exceed their credit limit. We are all interested to see whether that does bring about behavioural change and some better comfort and protection for consumers or whether people will simply adjust to their old credit limit plus 10 per cent, and then we will find that some of the challenges that have motivated this bill are still with us, just slightly differently calibrated.

The hierarchy of payments provision is quite important. That requires credit providers to apply relevant repayments first to the parts of the consumer's balance that attract the highest credit rate. This seems quite reasonable. I know that if you are swapping between credit card providers they will often entice you with a discounted interest rate for whatever balance you transfer. This is designed to make sure that, if you then add to that balance, the most expensive part of the credit that you have called upon is where your payments are applied first.

As I touched on earlier, there are also the unsolicited invitations to borrowers to increase their credit card limits. You can be a little bit vulnerable to that. I heard an example, I think, from a government member talking about Christmas time. Cash flow can always be a bit of a challenge then. Faced with the festive season, the season to be jolly, and not feeling so jolly in the amount of cash available to you, that might be just a little too tantalising. I am pleased to see that that practice will be curtailed by the provisions in this bill, and I think that is a constructive step forward.

I touched on the key facts sheets earlier. They are just to make sure that people are aware of what they are entering into. I mentioned that the House economics committee made some useful recom­mendations recognising the debt treadmill. It might be good for bank profits, but it can come at a significant social cost. On this side of the parliament we are always keen for people to be responsible for their own actions, but, in the support we can provide in making sure that relevant and useful material supports better decision making, we think that is a good move, and there are a number of elements in this bill that go toward that objective.

On competition in the marketplace: hopefully, these key facts sheets will make comparison a more straightforward exercise. Some of the fiscal gymnastics that accompany credit products like credit cards with a whole lot of ins and outs, differential interest rates, special offers and transfers of balances can be quite bewildering. I am hopeful that this will at least give a basis for people to make better comparisons between credit card offers in the marketplace, and that should be good for competition.

I think the delay in the facts sheets is a smart move. I touched on that earlier. That was something that the House economics committee recommended.

There was also an acknowledgement that this is not without costs. This will bring some cost to industry as it gears up to meet these reforms. On balance, the House economics committee thought that those costs should be outweighed by the benefits of these reforms. As I mentioned earlier, we are all very interested in seeing what behavioural change results from the measures in this bill. The overall position was that the House economics committee thought this bill should pass, and that is certainly the disposition of the opposition now that some important, albeit late in the piece, amendments have been made by the government.

I was interested to hear colleagues talk about fees. Even the previous speaker was talking about home loan exit fees. I think this is something we need to be very careful about. A convenient amnesia takes hold of the government benches when they are talking about these things. There is in fact already a statutory power available to ASIC to take action for unreasonable fees—that is, fees applied by financial institutions that bear no relation to the actual cost incurred by the institution for the transactions to which the fees apply. One that is often talked about is home loan exit fees. It is quite interesting. I wonder how many home loan borrowers, how many mortgage holders, would appreciate the fact that what is effectively happening through the government's efforts to ban home loan exit fees is that they are socialising the costs of the decision of people to exit their home loans across everybody in the bank who happens to have a home loan, which I have always found a bit strange. If those home loan exit fees were genuinely a gouge and unreasonable, there is an existing head of power available to ASIC to take decisive action. But instead the Labor Party and its members have gone on this mantra that home loan exit fees are bad. I know when I am trying to make sure I can afford my mortgage, and my electorate is concerned about the cost of their mortgage, they would hate to have them bolstered up by having to cover the costs of other people's decisions to exit a mortgage they may have with that bank or that lending institution which actually incurs real costs. Someone has got to pay it. It is a bit like that balloon full of water. You push down at one place and they will pop up somewhere else. The problem is where they pop up is not where the push began. The push was the person that is accessing the home loan, they are the one that is creating the legitimate cost. Yet the government seems to think it is appropriate to socialise that cost across everybody who happens to be a client of that bank.

I am particularly concerned about what that means for small business. Access to finance for small business has been one of the key public policy challenges that this government has failed to address. Finance is the oxygen of enterprise. Yet too many small businesses, after even offering to mortgage their home and their firstborn, are still being denied finance. They are now getting higher fees and higher margins. Why? Because there is such a focus on home loans when really we should be looking at all those paying the cost for the finance they need to access.

Jill Hall (Shortland, Australian Labor Party) Share this | Link to this | Hansard source

The National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011 will amend the National Consumer Credit Protection Act 2009, including the National Credit Code, to give effect to the government's Fairer, Simpler Banking policy. It will also introduce a requirement for lenders to give borrowers a simple one-page key facts sheet for home loans to help them shop around for a better deal.

One thing I am really pleased about as I stand here in the House tonight is that for once the opposition is supporting the government on a piece of legislation. This opposition that opposes everything that comes through this parliament is supporting us on this excellent piece of legislation. I think it is also worth noting that when this legislation went to the Selection Committee the opposition did what it always does: it sent good legislation off to a House committee that ended up recommending that the legislation be passed. I might add that that was unanimously supported by members of the relevant committee. This is an opposition that disrupts for the sake of disrupting. This is an opposition that opposes for the sake of opposing, even when we have very good legislation before the parliament.

But tonight I welcome and embrace the opposition's commitment to seeing this legislation pass through the parliament, legislation that will prevent lenders sending unsolicited offers to individuals to increase their credit card limit unless they elect to receive them. It is legislation that prevents lenders charging fees where a consumer goes over their credit unless the consumer elects to be able to go over that credit limit. It will require lenders to pay off consumers' debt with the highest interest rate until the consumer elects otherwise. In other words, if a consumer takes a cash advance that attracts a higher interest rate, that component of their credit card debt will be paid first. In the committee's foreword the chair of the committee, the member for Dobell, makes the point that the debt treadmill may be good for banks' profit but it has significant social costs. That is why the committee supported the bill.

I know from the many constituents who come to see me, and I am sure members on both sides of this House are aware—(Quorum formed)

I thank the member for Paterson for calling my colleagues to the chamber. I am sure they appreciate coming down just to hear my contribution to this debate. I might thank him for pointing out to the House what an outstanding contribution I am making on this very important piece of legislation. I am sure that my constituency in the Hunter is aware of your support for my contribution to this debate. As I was saying before a quorum was called for, the excellent member for Dobell and chair of the Economics Committee made the point that the debt treadmill may be good for banks' profits but it has a significant social cost, and that is why the committee supported the bill. I went on to say that members on both sides of this House would be visited by constituents who have found themselves in some degree of trouble because they accepted some of those unsolicited offers of increased credit limits and have found that they are having a significant problem with their credit cards. This legislation recognises how these problems can arise, and I am pleased that both sides of this parliament are supporting the legislation.

These reforms will regulate the circumstances in which borrowers can go over their credit limits and will abolish fees when they do so. Many of the banks do not support that, but already NAB has made some moves to recognise it and introduce some changes, without being forced to do so. The UK and the US have adopted a similar approach to this.

Currently the vast majority of credit card lenders will allocate repayments to the debt that attracts the lower interest rates. They will now be required to allocate the repayments to the part of the debt that attracts the highest interest. As a result, credit card users could save $360 or more a year. That is a very important change, along with the banning of unsolicited credit limit extensions.

The legislation makes it mandatory for credit card application forms to include a clear summary of key account features. It introduces a requirement for home loan lenders to give potential borrowers a key facts sheet so that they can compare between home loans. Once again that is a very important change. It is one that will be welcomed by consumers throughout Australia. The opposition have had the good common sense to recognise that this change will benefit all Australians.

I would also like to point out that you always know that legislation is hitting its target when you have banks complaining about the changes. For instance, Steve Munchenberg came out on behalf of the Australian Bankers’ Association and launched an attack on these changes. That attack was not driven by concern for good legislation but rather for concern about maintaining the level of profit that the banks have at the moment. He said that the move to increase regulation, especially for mortgages and credit cards, was misplaced and would lead to higher costs for consumers.(Quorum formed)

I again thank the member for Paterson for being so kind as to praise my speech and encourage my colleagues to come to the chamber. Once again I would like to put on the record just how appreciative the government is that for once the opposition is not opposing legislation that is passing through the parliament. It is a rare occasion for us on this side of the parliament to find that this opposition, which says no, no, no to everything, is actually saying yes to something and supporting a piece of legislation that is going through the parliament. This is excellent legislation which will benefit many Australians. Hopefully the opposition will honour its word and will not at the last minute renege on the undertaking to support it that many members have given.

I commend this legislation to the House and I am pleased that both sides of the House have indicated that they will support it.