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Tuesday, 21 June 2011
Page: 6741


Ms O'NEILL (Robertson) (20:25): 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.