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Tuesday, 21 June 2011
Page: 6730


Mr SYMON (Deakin) (19:35): 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.