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Friday, 28 November 1986
Page: 2990

Senator HAMER(11.57) —We are debating the Cheques Bill and the Bills of Exchange Amendment Bill concurrently. The Opposition supports the purposes of both these Bills. The primary purpose of the Bills of Exchange Amendment Bill is to remove from the Bills of Exchange Act the operation it has on cheques, which will now be dealt with in the new Cheques Act. The Bills of Exchange Amendment Bill is, therefore, consequential upon the passage of the Cheques Bill. The Cheques Bill had a very long gestation period. It originated more than 20 years ago when the Manning Committee reviewed the Bills of Exchange Act and recommended that a new Act be passed dealing comprehensively with cheques. These two Bills were introduced into the House of Representatives on 22 May last year and reached the Senate in August of the same year. Now, at last, they are coming on for debate. For those interested in the Bills, it will be appropriate to refer to the second reading speech made then by the Minister for Resources and Energy, Senator Evans.

As I said, the Opposition agrees with the purposes of these two Bills and will support them. We also agree with the amendments to the Cheques Bill foreshadowed by the Government, which primarily provide protection for the non-bank financial institutions in the handling of cheques and payment orders. The introduction of these amendments justifies the stand taken by the Opposition and the Australian Democrats when the Cheques Bill was introduced last year. Then, the Government urged us to pass the Bill with the promise that it would subsequently look into the problems of the non-bank financial institutions. We obeyed the old rule: When you have them by the ears, their hearts and minds will follow. We refused to pass the Cheques Bill until it was appropriately amended, and the results are before us. I am sure that, if we had done what the Government had wanted and passed the Bill, we would never have seen these amendments.

The amendments fully meet the concerns that the Opposition had with the Cheques Bill in its original form. They are necessary because there has been a tremendous change in financial institutions in the 22 years since the Manning Committee reported. There has been a great expansion not only in the number of banks but also, more importantly, in the growth of the non-bank financial institutions, some of which provide many bank-type services. At this point I should declare an interest to the Senate. I am a director of a building society, but I hasten to say that I will gain no financial benefit from the passage of this Bill or any of its amendments. My involvement with building societies has made me aware of the limitations on desirable building society activities caused by the lack of proper legislation for non-bank financial institutions. My position is, perhaps, comparable to that of a lawyer who presses for improvements in the operation of the legal system, perhaps in the area of legal aid as I know Senator Evans has done. In this place we should use the expertise of our members to the advantage of the community.

I want to talk about the problems of the present lack of proper legislation for payment services for customers of non-bank financial institutions. They affect credit unions as well as building societies. Building societies are operating in a highly competitive financial market. A building society requires a margin of about 3 per cent between the average cost of its funds and the average return it gets from its loans which are, predominantly, home mortgages. The lending rates on mortgages are set by the various State governments and it is obviously desirable that these be kept as low as practicable while, of course, permitting the building societies to remain financially viable. Their tight financial position comes from the fact that these mortgage rates are lower than the rates which investors can get on their funds from deposits with other banks and other financial institutions. The days when little old ladies left their savings in savings banks at derisory rates of interest are well and truly over.

Senator Puplick —Little old people.

Senator HAMER —I am corrected by Senator Puplick. If building societies are to attract a substantial proportion of their funds at below the ordinary market rate in today's sophisticated financial climate, they must provide appropriate services to their depositors. Otherwise, there is no way they will attract low interest funds. If they do not, home mortgage rates will go through the roof. In recent years building societies have attempted to attract low interest deposits by providing telephone bill paying services, by the introduction of an industry plastic card called `Cashcard' and the use of an Australia-wide automatic teller machine network. At present there are over one million Cashcards on issue and 450 ATMs installed. Building societies are developing the use of Cashcard to pay bills in large retail businesses such as supermarkets.

The trouble is that the costs of these services are all high. The operating cost per transaction is more than $2. Any improved payment mechanism that reduces costs to a building society will reduce overall costs and will directly lead to lower interest rates. The use of cheques is the obvious solution. One option is for a building society or credit union to act as agent for a bank, but this has a number of very unsatisfactory features. The name of the bank must be prominently displayed on the cheque and, as the bank is, in practice, a competitor of the building society or credit union, those institutions are being forced to display publicly the name of a competitor. The bank can then gain details of customers who draw large cheques. It is very expensive and difficult for building societies or credit unions to change banks. In fact, the building society or credit union is locked in to a particular bank and the bank can impose its own credit conditions and indemnities.

Finally, the building society or credit union may have significant legal problems. If the building society is issuing cheques as an agent for a bank, the cheques are drawn on the building society's account with the bank. The person drawing the cheque has an account with the building society. The bank, of course, refers to the building society before meeting the payment; but, if the cheque is stopped because of insufficient funds held by the drawer with the building society, the building society may have significant legal problems. It is almost essential, for obvious market reasons, for the building society to put its own name as well as that of the bank on the cheque. The holder of the cheque could sue the building society for the funds, both because of the appearance of the building society's name on the cheque and also because the building society's account with the bank, which has stopped payment of the cheque, would be in funds. This is a very dangerous exposure for a building society or credit union.

Practically speaking, banks are happy for building societies or credit unions to issue cheques as long as it is done in as difficult, expensive and dangerous a way as possible. That is what happens when a building society or credit union issues cheques as an agent for a bank. I do not criticise this attitude of banks. It is very understandable. They, too, are in a highly competitive environment and, if they are given opportunities to hobble competitors, it would be unreasonable to expect them to resist. Our job as legislators is to see that there is a fair go for all the competitors.

What should be done, and what is being done by the amendments foreshadowed by Senator Evans, is that non-bank financial institutions should be able to issue payment orders in their own name and on their own responsibility, and similar protection should be given for all parties to these transactions as applies to cheques. Of course, for these payment orders to be useful there would have to be access to the cheque clearing system, which is a private arrangement among the banks and is not covered in this Bill. Banks admit newcomers to the cheque clearing system and very properly impose a joining fee of perhaps $1m. There is no way they would admit a building society or credit union to the cheque clearing system but the problem could be easily overcome-there would be no difficulty about this-by arranging for a bank to act as an agent to clear a building society's or credit union's payment orders through the cheque clearing system.

It will not be a major problem to change the bank which was clearing the cheques, therefore the building society or credit union would not be locked into a particular bank in the same way as it is now when issuing cheques as an agent for a bank. However, not all building societies or credit unions will wish to, or be suitable to, issue cheques in their own right and for them a continuation of the agency arrangements will be necessary. It will be necessary to protect them from being, as I mentioned before, sued on the instrument.

I am delighted the Government has recognised these problems and has now proposed the appropriate amendments to the Bill, for the problems are here and now for building societies and credit unions. They are issuing cheques here and now as agents for banks-they have to if they want to remain competitive-and they are very vulnerable to being sued, so vulnerable it is difficult to get insurance against it. The competition for low interest deposits is here and now and the need for building societies to issue payment orders is urgent if housing loan interest rates are to be contained. These amendments which Senator Evans has foreshadowed have been endorsed by the Australian Payments System Council which comprises building societies, credit unions, all the major banks, the Treasury and the Reserve Bank.

I have one final matter. This is extremely technical, specialist and complex legislation and it appears to be very indifferently drafted. The text of the amendments was apparently received by the members of the Australian Payments System Council only a few days before the meeting, which did not, in the opinion of some members of the Council, permit adequate consideration of the details of the drafting. I understand some submissions will be made to the Attorney-General on the details of the drafting and if these are proposed they should be incorporated, provided, of course, that they are merely technical modifications and do not affect the basic thrust of the amendments. This legislation has been hanging around for a long time. I think we should get it through now and if any technical defects emerge perhaps they could be adjusted in the next Statute Law (Miscellaneous Provisions) Bill. The Opposition supports the Bill and will support the Committee stage amendments.