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Thursday, 23 June 2011
Page: 3703

Senator CARR: I table a revised explanatory memorandum relating to the bill and move:

That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speeches read as follows—

Today, I introduce a Bill which delivers on the Government’s election commitment to crack down on unfair treatment of Australians with credit cards, and to help them get a better deal in the banking system.

In December, the Government announced new reforms to promote a competitive and sustainable banking system to give every Australian a fair go.

We're introducing three broad streams of reform to empower consumers, support smaller lenders, and secure the flow of credit to our economy.

Today we are building on our new national responsible lending reforms by giving credit card holders more control over the amount they borrow.

We went to the last election promising to stamp out lender practices which see consumers pay more interest than they should.

And today that’s precisely what we will do.

This Bill also delivers on our commitment last year to introduce a compulsory, one-page key facts sheet for new home loan customers.

So consumers can compare a loan they are offered by a big bank side-by-side with what will often be a better deal from their local credit union.

Credit Cards

This National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill contains strong measures to help give hard working Australians a better deal when it comes to credit cards.

We have already overhauled our consumer laws in the past two years.

The commencement of the Australian Consumer Law marked the first time in 100 years that Australians have had a uniform consumer law.

The new National Credit Code introduced for the first time a national consumer credit law with tough new protections for consumers.

Today we deliver on our promise to fast-track reforms through the National Credit Laws to increase fairness for credit card holders.

This Bill will give consumers more say over how they use their credit cards and help them better understand what they are signing up to.

Banning unsolicited offers to borrowers to increase their credit limit

The Bill prohibits lenders from sending unsolicited invitations to borrowers to increase their credit limit, as they sometimes cannot easily afford to.

Australian families who accept these types of offers can, over time, end up with too much credit card debt which can take years to pay off.

Of course this means they are saddled with significant interest payments which make it that much tougher to balance the family budget.

Some families have seen their credit card limit blow out to $10,000 after a series of unsolicited offers. On a typical credit card at about 20 per cent interest per year this represents a very large debt.

For a family that can only afford repayments of around $200 a month, it would take them about nine years to repay this level of credit card debt, and they would be slugged with over $11,000 in interest bills.

This Bill ensures credit card lenders won’t any longer be allowed to send consumers pre-approved, ‘tick a box’ offers to increase their credit limit.

These types of offers will simply be banned.

Consumers will be able to explicitly agree upfront to receive pre-approved offers to increase their credit limit - if that’s what they want.

But consumers who want to carefully manage their finances will no longer have to resist the temptation these types of offers present.

They’ll be able to make an informed decision to modify their credit limit - either up or down - if that suits them and their family budget.

But they won’t be doing it because they were encouraged to do so by a lender who just wants to make a buck out of them.

Use of credit card in excess of credit limit

This Bill also prevents lenders charging fees to customers who go over their credit limit, unless they’ve expressly asked for this service.

Of course, the Government recognises that lenders will have discretion to approve some payments which go over the credit limit.

They may have only gone over their credit limit by a few dollars, so it’s important that we leave a bit of flexibility here while protecting them.

For example, it is in the interests of the borrower’s family for their lender to honour a payment of their electricity bill so their power isn’t shut off.

Lenders will have discretion to approve a transaction that takes a borrower over their credit limit. This formalises existing arrangements but supplements them with new protections. First, lenders will need to notify consumers when they go over their credit limits and, more importantly, lenders will not be able to charge a fee unless the consumer has given their express consent to being charged a fee.

It is estimated that Australians will save around $225 million annually from this reform.

Overall this critical reform will mean an end to most credit limit overdraw fees, and significant savings for Australian families and all consumers.

Warning on statements about only paying minimum repayments

We will further make regulations requiring all lenders to clearly warn consumers on their monthly credit statement of the consequences of only making minimum repayments.

Many consumers fall into the trap of only paying the bare minimum required every month - which ends up costing them dearly over time.

Even slightly higher payments can make a big difference to how much interest they are charged.

This is critical to helping Australian manage their household budget.

Force lenders to allocate repayments to higher interest debts first

The Bill also forces lenders to allocate repayments to higher interest debts first - so consumers don't pay more interest than they should.

Currently, consumers don’t have any control over how their repayments are allocated, with lenders often using their money to pay off parts of the loan which are actually only incurring low or no interest.

This means that the remainder of the consumer’s debt can be accruing interest at a higher rate, and without being reduced by the repayment.

The reform will address this by ensuring repayments are allocated to the higher interest balances first.

A family could save something like $170 a year or more, depending on their spending habits and credit limit.

Put simply, we’re ensuring that every dollar paid by the consumer works harder to pay down their debts.

One-page home loan key facts sheet

In December, the Government also announced that we would introduce a simple, standardised, one-page fact sheet for consumers to compare loans.

Families will be able to compare the cost of different home loans by putting one-page facts sheets from different lenders side by side.

They’ll be able to tell instantly the savings they could make between different mortgages every year and over the life of the loan.

A potential home borrower could easily compare the relative cost of a mortgage from a credit union against a big bank.

Buying a home is the most important investment many Australians will ever make - and this Bill helps them shop around for the best deal.

Choosing the wrong loan can be expensive - half a percent more interest on a $250,000 loan can cost a borrower $30,000 more over 30 years.

We’re ensuring consumers know how many dollars they will repay for every dollar they borrow - so they can compare this across lenders.

Consumers will be able to see and understand the true cost of a home loan, at a single glance.

This reform is all about forcing banks and other home loan providers to be honest and transparent with Australian families.

It is about promoting competition in the banking system, and doing a little bit to help all Australians meet the costs of living.


The Gillard Government is changing the way banks and other lenders do business, and putting the power back in the hands of consumers.

We worked hard through the global financial crisis to secure our financial system, and preserve the competitive foundations of our banking sector.

In December the Government announced a further reform package to help build up competition again in the banking system for all Australians.

Of course, there’s no silver bullet here, but the Bill I am introducing today is part of our commitment to always stand on the side of consumers.

I encourage all members of this House to do the same.

Debate adjourned.

Ordered that the resumption of the debate be made an order of the day for a later hour.