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Wednesday, 22 June 2011
Page: 6870


Ms BIRD (Cunningham) (12:43): I rise to support the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011. The purpose of the bill is to amend the National Consumer Credit Protection Act 2009, which includes the National Credit Code, and it continues this government's commitment to effective credit reform— in particular, our Fairer, Simpler Banking policy. The bill delivers on the government's election commitment to take actions to provide greater protections for Australians in their use of credit cards and most importantly to ensure they are not being charged excessive fees for this usage. I seek to speak in this debate because I am acutely conscious of the increasing role of credit in modern life. When I was in my young married days we had a home loan and store cards, and it was not long before credit cards were added to that. Now, many people also have credit on things like mobile phones, and the extension of credit throughout their lives has continued. On top of that, there is far more comprehensive calculation of and shared information about people's credit histories, so it has an even more far-reaching impact on their lives. It is critically important that as a national government we are actively engaged in this area.

In addressing the bill I will first outline the progress of the reform program of which this bill is a part. Then I will outline the specific details of the bill and, finally, I will address some of the important local implications of the bill for my own constituents. I turn first to the broader context. The government has been committed to building national responsible lending reforms, and we have been progressing this important agenda as part of COAG's national credit reform agenda. The Fairer, Simpler Banking reforms were announced during the 2010 election campaign, with the reforms to be implemented by mid-2012. Consequently, legislation was introduced in the first sitting of parliament this year which requires lenders to meet the new obligations from 1 July 2012. This particular bill will give consumers greater control over how they use their credit cards and will help them to be better informed about the credit agreement that they are undertaking.

To achieve this the bill covers five specific areas of reform. First, it regulates overlimit fees. A problem arises because credit card providers generally allow accounts to go over their specified credit limit, but the customer is then charged a higher overlimit borrowing fee for that activity. It is reported that credit card providers currently charge approximately $225 million per year in such fees. The reforms in this bill will ban overlimit fees unless the customer has asked for the facility—that is, they want the ability to go over their limit and they indicate that they are aware of and are willing to pay an additional charge for the facility. More generally, lenders will be allowed to provide credit in excess of the customer's agreed limit providing they do not charge a fee for their decision to allow the customer to overdraw on their credit. It is important to allow lenders this discretion, as in a range of circumstances they would allow an overdraw, but that should not draw an additional charge unless such an arrangement is explicitly previously agreed to by the customer. On the other hand, customers will also have the power to opt out of this default buffer if they feel that is a good option for them. Consumers will also be able to ask their credit provider, if they so choose, for a larger buffer for which they are prepared to pay an access fee.

The second area of reform in this bill is the allocation of repayments. It is currently the case, and my colleague the member for Capricornia outlined this very effectively, that the vast majority of credit card lenders allocate repayments firstly towards that part of the debt which is attracting the lowest interest rate. The example the member for Capricornia gave was that cash advances attract a higher rate than standard purchases, and so the lenders' policy is clearly detrimental to the borrower as the effect of the repayment is not maximised. This bill will reverse the order so that consumers can pay off their higher interest-bearing debts first. This will enable a credit card user to save an estimated $360 per year or more, depending on their spending habits and their credit limit. This approach has already been adopted in the United Kingdom and United States jurisdictions. I would also point out, as other speakers have, that since the announcement was made in the 2010 campaign the NAB in Australia has also introduced this change and is using it as a competitive argument.

The third area of reform in the bill goes to the practice of unsolicited credit limit extension offers, which have also been discussed by some of my colleagues. This is where unsolicited approaches are made, often by letter or, today, even by email or contact on the web when banking services are accessed. They offer preapproved, ready to go, immediate access to a higher limit, requiring very little engagement with the customer other than a yes or the tick of a box to up their limit. The problem is that consecutive decisions can very quickly end up with people having relatively high limits which are often beyond their capacity to manage. This increases the likelihood of repayment defaults and credit users falling into arrears, and it compounds the effect of the financial difficulties people find themselves in. This legislation will ban unsolicited credit limit extension offers being sent to credit card holders unless they have, again, previously given permission for such invitations to be sent to them. The original bill has been amended to clarify that consents obtained before the commencement will be valid for the purposes of this bill.

Many of the most important features of credit card services are encompassed in the application forms that are originally completed by the customer. This bill will require application forms to include a key facts sheet for potential credit card borrowers. This is intended to give customers upfront information about the key features of the particular credit card for which they are about to apply and can include information such as interest rates on purchases, cash advances and promotional offers, and the annual fee and other relevant fees. It should also be noted that further reforms that were part of the Fairer, Simpler Banking policy are intended to be introduced through regulations to the National Consumer Credit Protection Act 2009. These will include the requirement that lenders inform customers about the implications of paying only minimum repayments on their statements—a situation that often ends up in higher debt and higher interest payments and the feeling of being on the treadmill of never getting on top of your debt. They will also include standardisation in the calculation of interest to enhance comparability between credit cards and the requirement on lenders to ask customers to nominate a credit limit when they apply for a credit card.

This bill will also fulfil the commitment of the government to provide a key facts sheet for home loans. This was part of the government's banking package announced in December 2010. It will provide information on standard home loans in a consistent— (Quorum formed) In the time that is left to me I will address some of the local issues I want to speak about, given that my colleagues such as the member for Braddon have very effectively covered the full details of the bill in their contributions to the debate. In the final part of my contribution I would like to speak about an aspect of credit that is important, which I raised at the beginning of my contribution, around people managing their credit responsibilities and the implications that occur for them when they have difficulties with that.

There was an important pilot project on credit that I was able to launch in my local area in May. Many of us would be well aware of the ease with which people, particularly when they are vulnerable or in difficult circumstances, can fall into poor credit practices and end up in difficult financial circumstances, which leads to negative credit ratings. The implications of this poor rating on their ability to access credit, to get a rental property, to purchase telephone services and on many other aspects of normal daily life are profound. The repercussions drive them even further into financial difficulties and, all too often, into the grasp of aggressive and unscrupulous lenders in the general market place.

The Minister for Families, Housing, Community Services and Indigenous Affairs announced on 17 February this year that the federal government would provide $6.27 million for a pilot to be run by five community development finance institutions across Australia to provide individuals and organisations with appropriate financial product loans that they would otherwise be excluded from accessing. This measure recognises that Australia has a well-established banking industry but that there are individuals who suffer financial exclusion, maybe from low levels of financial literacy or poor knowledge of financial products and services. For these people the standard services may be denied because of previous poor records or they may exclude themselves because of their lack of trust or knowledge of those services. Sadly, all too often, these people can also fall prey to people like day lenders and so forth, who charge extremely high rates of interest. This often leads them into real financial distress. It is clear from many studies that this sort of pressure is devastating on families and can contribute to problems such as conflict and family breakdown.

The CDFI pilot seeks to build the capacity and resilience of disadvantaged and financially excluded individuals by attracting investment and injecting funds into community finance organisations which will offer them appropriate products supported by education and services to manage the repayment of these loans. They will provide financial literacy skills and, importantly, improve the saving and loan repayment record of the individual. This is an important program and in the Illawarra the two local partners have been funded with $2.3 million to deliver the pilot. The launch was organised by Mr Peter Quarmby, who is the executive director of strategic development at Community Sector Banking, which is headquartered and was established in Corrimal in my electorate. CSB in Australia's only specialist banking service for not-for-profit organisations and is joined by another excellent local service, Access Community Group, to deliver this important project to people in my electorate.

I commend the bill and the broader thrust of the government in credit reform to the House.