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Tuesday, 21 June 2011
Page: 6737


Mr LYONS (Bass) (20:08): 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.