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Monday, 4 July 2011
Page: 3919


Senator XENOPHON (South Australia) (17:13): I indicate my support for the second reading of the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011, but I foreshadow that I will have a number of amendments that I will ask the Senate to consider seriously. This bill follows the Treasurer's announce­ment in December last year that the govern­ment wanted to 'promote a competitive and sustainable banking system to give every Australian a fair go'. Under this bill, yes, some good measures are being introduced. Consumers will be provided with fact sheets prior to entering a home loan or a credit card contract. Lenders will not be able to offer unsolicited invitations to borrowers to increase credit limits they may not be able to afford. This is something that as a member of the South Australian parliament I cam­paigned for and it is an important issue in terms of basic consumer rights in the face of that sort of aggressive behaviour by some lending institutions. Also, over-limit fees will be prohibited, and credit card payments will pay off higher interest debts first, which I think is a good and innovative solution. These are good measures.

But if the government is serious about ensuring a competitive and sustainable banking system then it needs to seriously reconsider its blanket ban on exit fees. I acknowledge that this chamber recently debated a motion—moved by my colleague Senator Cormann, for the opposition, and by me—to disallow the government's regu­lations which came into force on Friday, 1 July. However, I wish to highlight again my concerns about the impact this blanket ban will have on small lenders and the con­sequence for competition in the banking sector.

At the outset, I make it clear that I do not support the excessive exit fees that have been imposed by lenders to date. While the government might have the right intention, a blanket ban on exit fees is not the solution. Banning exit fees across the board was the government's knee-jerk reaction late last year to public demand for greater competition in the banking sector. The only way to ensure competition in the banking sector, however, is to support the smaller players. All the govern­ment's ban on exit fees will do is reduce competition in the longer term because smaller players will be severely impacted as a result and there will simply be cost-shifting in where the fees are being charged.

The simple fact is that small lenders need to be able to cover their costs of lending, which the big banks are able to offset in other areas of their business. The big banks also have much greater flexibility in their ability to raise finance. Smaller lenders are forced to pay third parties to complete the administrative necessities of a home loan such as valuations, legal fees et cetera. These costs usually total between $1,000 and $2,000, so fees are applied to cover these costs should borrowers leave their mortgages in the first few years. Unlike the big four banks, small lenders are not able to offset these costs in other ways. By banning exit fees, small lenders will have to either bear the costs themselves or lift their rates, making them uncompetitive against the big banks that can absorb these costs elsewhere.

While the government's ban may have been intended to improve competition, it will actually have the consequence of reducing competition by severely impacting on the non-bank lending sector and, as a consequence, interest margins on mortgages will rise over time. To address this, I foreshadow I will be moving amendments in the committee stage of this bill so that the ban on exit fees will only apply to lenders and their subsidiaries who hold a particular market share or greater to ensure that smaller players are able to, within reason, apply fees to their own customers.

There will be an overarching consumer protection provision, which this bill has not addressed, because the amendments I will be moving will have a reasonableness test. There must be some materiality for all fees and charges relating to the provision of credit. For instance, that reasonableness test would also apply to credit card fees.

I welcome the measures in this bill, but I think the government needs to seriously think about its blanket ban on exit fees if it truly wants to promote a competitive and sustainable banking system to give every Australian a fair go. My concern is that the government's changes will have the effect of further reducing the competitive pressures within the banking industry. It will further, since the GFC, consolidate the power in the big four banks.

There is something fundamentally missing here and that is the issue of unfair contract terms. At the moment, ASIC needs to give some guidance in unfair fees. I think the current test is simply too vague. The amendments I will be moving will ensure there must be a link, a reasonableness test, a materiality test, between what is being charged by any lending institution in the provision of credit with respect to any penalty fees and the like. I think it is important that there is substantial consumer protection reform. Simply giving consumers information is not enough. You need to give consumers protection so that what they are being charged is reasonable and so that the fees being charged are materially linked to the cost of providing that service. This bill does not do this and that is why I will be moving amendments during the committee stage to improve this bill.