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Wednesday, 22 June 2011
Page: 6873


Mr ZAPPIA (Makin) (12:59): Between 1996 and 2007, credit card debt in Australia rose from $6.6 billion to $42 billion. Currently it sits at around $49 billion. Monthly figures for total credit card transactions—that is, cash advances and purchases—went from $2.1 billion in March 1996 to $18.3 billion in November 2007. For March this year, the figure was around $21.6 billion. In the last decade the collective profits of the four major banks rose from around $8 billion in 2001 to nearly $21 billion in 2010.

I make two observations from those statistics. Firstly, credit card debt blew out under the previous coalition government. Secondly, bank profits have risen as credit card use and credit card debt have increased. The obvious link between credit card debt and bank profits is simple, and other speakers on this bill have made reference to it. Firstly, there are more fees and charges—in particular, overlimit fees, which both the member for Cunningham and the member for Capricornia alluded to in their remarks on this bill. Secondly, the interest rate charged for credit card debt is generally much higher than for normal mortgage loan or overdraft debts.

In years gone by, the four credit cards were not used as prevalently as they are today. Bank customers might have sought a temporary overdraft or a personal loan, and a temporary overdraft or a personal loan would have generally attracted an interest of two or three per cent above mortgage loan rates. Credit card loans, which is effectively what they are when people use the credit facilities allowed to them under their credit card, are more in the vicinity of 18 to 20 per cent—that is, two to 2½ times higher than getting those same credit advances in years gone by.

There is no question that, in recent decades, Australians have changed the way in which credit is used. Since the introduction of Bankcard in 1974, our credit card culture has become entrenched. It has been largely driven by a push from the banking sector to encourage the use of credit cards as we head more and more towards a cashless society. A survey undertaken by the Australia Institute last year confirmed what anyone can see merely by opening their mail or taking notice of advertising—that is, banks are actively encouraging their customers to use credit.

The survey results, which were published in'Money and Power: the case for better regulation in banking', show the extent to which unsolicited offers were made for new credit cards, personal loans or increased credit card limits. Over a 12-month period, from mid-2009 to mid-2010, two out of three respondents had received an unsolicited offer for a new credit card, one in two had received an unsolicited offer to increase their credit card limit, one in three had received an offer for a personal loan and one in five had received an offer to increase the available credit on their home loan.

The banks will say that these offers were made by banks to existing customers who had demonstrated over an extended period of time a capacity to determine whether a higher credit card limit would be of service to them. The response that banks made offers to extend credit limits only to persons capable of making an informed decision, based on their capacity to repay the loan, may seem reasonable. However, in the context of a society driven by consumption, this situation warrants closer scrutiny.

As a society we are dedicating a lot of energy to addressing problems such as anxiety and depression. Financial hardship and insurmountable debt are often causes of anxiety and depression. Over the last decade, credit card debt rose from $16 billion in $2001 to $49 billion in April 2011. This represents an increase of over 300 per cent in the level of credit card debt Australians have incurred over the last decade. Using credit may not be anything new, but the level of debt being incurred is of concern. The measures in this legislation will assist individuals and families to manage their finances.

Turning to the specifics of the bill, the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011 gives effect to the government's Fairer, Simpler Banking policy. These reforms will regulate the circumstances in which borrowers can go over their credit limits and will abolish fees when they do so, except in situations where the consumer has provided informed consent to opt in. They will require credit card payments be allocated to repayments of higher interest bearing debts first, and other speakers have referred to the importance of that matter. The reforms will ban unsolicited credit limit extension invitations that encourage borrowers to increase their credit limit, except where the consumer has provided consent to opt in. The reforms will make it mandatory for credit card application forms to include a clear summary of key account features and, finally, the reforms will introduce a requirement for home loan lenders to give potential borrowers a key facts sheet so that they can compare home loans.

Other aspects of the Fairer, Simpler Banking policy will be introduced through regulations to the National Consumer Credit Protection Act 2009. Regulating the circumstances in which borrowers can go over their credit limits is an appropriate measure to ensure that individuals do not find themselves in debt that they are unable to overcome. Indeed, I have to ask why such features are possible to begin with. The requirement that credit card payments are first made to higher interest bearing debts is logical and takes some pressure off individuals navigating their way out of debt. Banning unsolicited credit limit extension invitations that encourage borrowers to increase their credit limit, except for where the consumer has provided consent to opt in, may help banks to once again balance their role to one that is between a business seeking to maximise profits and a service provider to the community.

Bank workers in Australia are often paid a commission or have targets imposed on them to sell their bank's products, and encouraging customers to take on a heavier credit burden can be part of their employment demands. Less scrutiny is also being applied to providing consumers with additional credit. I recall listening some 12 months ago to a radio interview with a person who had got into enormous financial difficulty through credit granted to them by their bank. Ultimately, the person was taking a new credit card, with the credit that went with it, in order to pay off the previous one. This became a chain reaction, with one credit card after another being taken out by the consumer in order to secure credit to make the minimum payments on the previous credit card debt that the person had incurred. In the end, the person was simply unable to cope with the financial demands on them and I understand that the bank had to write off the debts. The problem with writing off the debts is that it does not really help the consumer at all—that consumer finds that they are now a credit risk and unable to secure credit in the future. Just as importantly, banks' bad debts are inevitably costed into their operations, which effectively means that every customer shares, in a sense, the cost to the bank of the bad debts incurred.

Historically, bankers have asked two questions when approving credit. Firstly, they asked about the availability of collateral. Secondly, they asked whether the client could demonstrate a capacity to make full repayment, including the interest that would be accrued. That no longer appears to be the case. I believe that regulation is critical to ensuring that the banks understand that their role goes beyond a narrow pursuit of profit but indeed plays a critical role in the lives of Australians and in the workings of the national economy.

These reforms also seek to ensure that potential customers have access to valuable information which they can use to make an informed decision about whether a particular account is the best option available to them. Providing a clear summary of key account features will do that. Similarly, a requirement that home loan lenders provide a key facts sheet so that potential borrowers can compare home loans is a simple reform which gives Australians the best chance of selecting a home loan that best suits their circumstances. It is not always easy for someone purchasing their first home to compare loans and understand the full implications of the undertakings they are about to embark on. Finally, I note that this legislation was referred to the House of Representatives Standing Committee on Economics and that the committee, in reviewing the legislation, recommended its adoption. I therefore commend this bill to the House.