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Monday, 20 June 2011
Page: 6493


Mr TONY SMITH (Casey) (19:34): I rise to speak on the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011 and, in doing so, speak on behalf of the shadow Treasurer, who was listed to speak in this debate but is at this very time giving another speech at another place—not in the Senate—which is the keynote address to CEDA that was scheduled some time ago for this time of the evening.

The bill before the House this evening outlines changes to the National Consumer Credit Protection Act 2009 and introduces a requirement for lenders to provide a key fact sheet for standard home loans. It also introduces a number of reforms to lending terms for credit cards by, firstly, prescribing rules for approval for the use of credit cards above the credit limit; secondly, specifying an allocation hierarchy for payments made under credit card contracts; thirdly, restricting credit card providers from making unsolicited invitations to borrowers to increase the credit limit of their credit cards; and, fourthly, introducing a requirement for lenders to provide a key fact sheet for credit card contracts.

On behalf of the shadow Treasurer, I say at the outset that the coalition will not be opposing this bill. However, that does not mean we believe it is good legislation or that it is the best way to advance the interests of consumers of financial services. The way this legislation has been handled is typical of the government's hasty and poorly thought through approach and their approach to policy generally. Consultation with industry has been poor, to the point where extensive last-minute amendments have been made to address industry concerns. Also, much of the detail of the bill has been left to regulations, which are due to be announced, we are told, by the end of June—although there can be no certainty even on this point, today being 20 June. The parliament is being asked to vote on an important piece of legislation, again without knowing all of the details. More generally, this bill continues the government's intrusion into the commercial processes of business. Rather than try to improve the workings of the market for financial services, the government has chosen to interfere in business decisions through further regulation.

As I said at the outset, the first element within the bill introduces a mandatory key facts sheet for standard home loans. It is important to understand the history leading up to this change. The key facts sheet was one of the elements of the Treasurer's Competitive and Sustainable Banking package that was rushed out towards the end of last year, a few months after the shadow Treasurer announced his nine-point banking plan to achieve a better deal for consumers of financial services. The Treasurer has not been leading from the front on banking reform; rather he has been struggling along in the coalition's wake. The coalition's banking plan received wide support within the business community, as well as support from Independents and crossbenchers. The Treasurer's package adopted some key features of the coalition's nine-point plan, such as legislation on price signalling and the introduction of covered bonds. However, in many other respects it was a piecemeal approach addressing concerns issue by issue rather than taking an overall industry-wide approach to improve the workings of the market by increasing competition. Indeed, some of the changes appear counter­productive to the stated aims.

A case in point is the banning of exit fees on new floating-rate mortgages, which was introduced through regulation rather than legislation. The coalition has consistently argued that the banning of mortgage exit fees will materially weaken the competitive position of the smaller lenders by preventing them from offering packages which give borrowers lower interest rates in return for a loyalty commitment for a number of years. This lessens competition in the provision of financial services. Crucially, the coalition is not arguing that lenders should have to have exit fees—indeed, many lenders are now offering products with no exit fees, and the coalition welcomes this. Consumers can choose from that mix of features that best suits their circumstances from the enhanced range of products now available. It may be they prefer a lower interest rate with an exit fee. The point is that restricting competition and choice is against the broader interests of consumers more generally.

We also need to ask ourselves why it took the government so long to respond. The problems associated with a lessening of competition in the banking system have been apparent for some time. Now we are in this House in June 2011, at least a couple of years after those problems became apparent and six months after the Treasurer released his plan at the end of last year, to debate one of the aspects of the government's plan: the key facts sheet for standard home loans. The facts sheet is intended to make it easier for consumers to readily compare different home loans by requiring lenders to provide standardised loan information such as pricing and other details about the product. The Treasurer, Mr Swan, has claimed that this change, along with the other measures which were included in his banking package, will ensure that interest rates are lower over time. In fact, the Australian ran this headline the day after the Treasurer's announcement: 'Swan pledges to bring down rates with reforms'. That was on 13 December 2010. Of course, this heroic claim will soon be put to the test. The Reserve Bank has repeatedly warned over the past few months that interest rates will soon need to rise. Some commentators believe an August rise is likely, following the release of the next consumer price index figures. If this does in fact occur, it will be instructive to see how the Treasurer explains it in the context of his banking package.

The coalition has some criticisms in relation to the consultation process for this bill. It has been clear from the coalition's own consultations that many industry groups have been asking for more time to prepare their businesses to cope with these new changes. The key facts sheet for standard home loans was originally set to apply from 1 September this year. Much of the detail required in the facts sheet was to be prescribed by regulations, which are yet to be released by the minister—and, as I said earlier, are expected to be announced sometime in the days left in this month. This would have left institutions with a very small window of time to prepare—less than three months. The government were going to give institutions less than three months to change and update their information systems, to establish new documentation processes and to train their staff in order to comply with this legislation. The point is particularly important as the bill, prior to the government's amendments, provided for serious civil and criminal penalties as well as strict liability if the requirements for the provision of the key facts sheet were breached. At the eleventh hour the government have decided to repeal the strict liability, a sign that they have listened at the last minute to the concerns of industry and institutions. And the government have delayed the commencement date by four months, until 1 January 2012. We are glad the government have chosen to acknowledge their short-sightedness through moving amendments to address these problems; however, this problem would not have occurred in the first place had the government not had a tin ear when it came to consultation with industry and affected parties.

The second aspect of this bill relates to reforms to lending terms and conditions for credit cards. The first of the reforms relates to the rules for the use of credit cards above the credit limit. This is another area where the original form of the bill was inadequate and where substantial changes have been required. The original bill sought to set a mandatory default limit above which credit cards could be overdrawn, with an additional discretionary supplementary buffer on top of that. Industry bodies and institutions expressed concern that the bill would send a message to consumers that they may, in effect, have a 10 per cent higher credit limit available. This could act to worsen credit card debt problems for some consumers. This was just one of a number of potential unintended consequences for consumers looking to take out credit cards in the future.

The government has now removed this section through its minute-to-midnight amendments. It has replaced it with a requirement for consumers to be notified if a credit card is used in excess of its credit card limit. This has been accompanied by an express requirement that no fees are to be imposed and no higher rate of interest to be charged if a customer exceeds their credit limit, unless they have provided explicit consent for a fee to be charged.

The second change relating to credit cards contained within the bill is that which now specifies an allocation hierarchy for payments made under credit card contracts. Payments will be allocated first to those components bearing the highest interest charge. This measure addresses existing practices where some credit providers allocate payments in a way that can maximise the amount and time required for the consumer to repay their credit. The coalition views this as a reasonable reform and supports this measure, as it will greatly assist consumers in trying to pay down their credit card debt.

The third reform contained within the second section of the bill relates to restricting credit providers from making unsolicited invitations to borrowers to increase the credit limit of their credit card. At first glance this seems reasonable. Borrowers would have the limit they initially agreed. They would have the option of applying for a higher limit, but they would not be induced into a higher limit than they really wanted or required. Some institutions, however, have expressed concerns that the wording could be subject to wider interpretation to cover all customer communications in relation to the provision of credit. Also, it could have the unintended consequence of forcing credit providers to push borrowers towards higher initial credit limits than they otherwise would have been offered.

The fourth and final change contained within this section of the bill implements a requirement for lenders to provide a key facts sheet for credit card contracts. The coalition had reservations over the key facts sheet for credit cards as we did for standard home loans. Those concerns related to the limited amount of time the government was going to give industry to comply with the changes, which would have been, as I said earlier, less than three months. And, again, the detail of the content of the facts sheet would have been left to government regulations which, as I have said, are yet to be released. This would have further shortened the time frame for institutions to comply. These concerns were echoed by industry bodies and institutions. The coalition is glad that the government has chosen to acknowledge its short-sightedness by moving amendments to address these problems by extending the compliance time out until January 2012—although, again, this problem would never have occurred had the government consulted effectively in the first place.

In conclusion, as noted at the outset on behalf of the shadow Treasurer, the coalition will not be opposing this bill. It needs to be repeated that this has not been the government's finest hour in drafting legislation. There were many aspects of the original legislation which, by virtue of the government's minute-to-midnight amend­ments, were poorly thought through and where consultation with industry was inadequate. The coalition also views this bill as a whole as an unsatisfactory response to the perceived issues within the banking industry. As I indicated earlier, we have expressed some support for one of the measures in particular, but we stand by our view that consumer interests could best be met by measures which encourage competition within the banking sector, as opposed to this prescriptive, ad hoc regulatory approach. The experience with the Treasurer's approach to this bill, from the time of his announcement prior to Christmas, again highlights and demonstrates that it is time for a full root-and-branch review of Australia's financial system, as outlined in the coalition's nine-point plan on banking, released in October last year.