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Tuesday, 21 June 2011
Page: 3416


Senator XENOPHON (South Australia) (15:57): I present the explanatory memoranda 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 speech read as follows—

At the outset, I would like to make it clear that I do not support the excessive exit fees that have been imposed by lenders to date.

There are multiple examples of home owners who have been forced to sell their homes to cover fees in the tens of thousands of dollars, and this is simply not acceptable.

For too long, banks and other lending institutions have profited off these unreasonable fees—with customers left with little choice.

However, I am also aware and concerned about the impact the Government's blanket ban on exit fees will have on smaller lending institutions.

Access to funds for smaller lenders is much more expensive than it is for the major banks, and some of the measures taken during the Global Financial Crisis only worked to cement the market domination of the 'Big Four' banks, in fact the Government's measures had the effect of increasing their dominance.

For smaller lenders, exit fees are a valid way of recouping some of their costs should a customer decides to break their contract and change products or providers.

These lenders do not have the multi-billion dollar bottom lines of the Big Four, nor are they able to offset these costs elsewhere, so a blanket ban of exit fees will seriously impact small lenders.

There is far too little competition in Australia's banking sector, and we must protect what little competition exists.

If the smaller players are not able to apply fees they will be severely disadvantaged. If this happens, then the Big Four banks will increase their share in an already too-concentrated market.

Broadly speaking, consumers deserve the flexibility to move from one lender to another, or from one product to another, to ensure they are getting the best deal for their money.

But part of ensuring that customers are able to do this is making sure there is a robust sector, and a wide range of products and providers, for customers to choose from.

The recent Senate Economics Committee Inquiry into competition in the banking sector estimated that the big four banks account "for around three-quarters of deposits and assets and a larger share of home loans".

The Committee also pointed out that:

"There are hundreds of corner stores competing with Coles and Woolworths but this does not mean that these two stores do not dominate grocery retailing. In the same way, the four major banks dominate the banking market, notwithstanding a long tail of small financial organisations."

It is vital that we support the smaller players of the banking sector.

This Bill requires APRA to prohibit banks with a market share of more than ten percent from charging exit or early termination fees for any loan agreement or mortgage contract.

This prohibition will also apply to any subsidiary company or organisation which is owned 51 percent or more by a bank with more than ten percent market share.

That is, a financial subsidiary which is effec­tively an extension of one of the major banks will also be prohibited from charging exit or early termination fees.

This provision will ensure that only small, independent financial organisations will be able to apply reasonable fees to recoup some of their costs.

This Bill also inserts a provision into the National Credit Code to provide some guidance on the meaning of 'reasonable'. The provision states that a credit fee or charge must not materially exceed the credit provider's reasonable costs of undertaking the activity or service related to the fee or the credit provider's average reasonable costs of undertaking the activity or service.

This means that smaller providers who do apply fees related to the extension of credit—whether it be for a personal loan, home loan or credit card—must ensure it is reasonable and materially relevant to the cost incurred to undertake the activity or service.

The Bill also provides that ASIC may apply to the court for an order to annul or reduce a fee it feels does not meet these criteria.

There is no doubt that urgent action needed to be taken in relation to exit fees, and I applaud the Government for taking that action.

However, a blanket ban is not the solution.

All it will do is push the smaller players out, reinforce the dominance of the Big Four and, as a result, reduce choice, pushing up other banking costs for consumers.

Small lenders and operators play a vital role in our financial sector, and we must ensure that they are protected.

On the surface it might seem slashing all exit fees is a good idea.

But when you scratch the surface it becomes clear that abolishing exit fees for smaller lenders could have a devastating effect on competition, and consumers will end up paying a lot more in the long run.

Senator XENOPHON: I seek leave to continue my remarks later.

Leave granted; debate adjourned.