2010

 

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

 

SENATE

 

 

 

 

 

Banking Amendment (Controls on Variable Interest Rate Changes) Bill 2010

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

(Circulated by authority of Senator B Brown)

 

 

 

 

 

 

 

 

Banking Amendment (Controls on Variable Interest Rate Changes) Bill 2010

 

 

Outline

 

The Banking Amendment (Controls on Variable Interest Rate Changes) Bill 2010 (the Bill) amends the Banking Act 1959 to require Authorised Deposit-taking Institutions (ADIs) to

·          not increase variable interest rates on loans and mortgages by more than Reserve Bank interest rate increases

·          not decrease variable interest rates on loans and mortgages by less than the Reserve Bank interest rate decreases  

 

The amendments made by the Bill have effect for a period of 2 years from their commencement.

 

 

 

NOTES ON CLAUSES

 

Clause 1 - Short Title

 

This is a formal provision specifying the short title.

 

Clause 2 - Commencement

 

The Bill's provisions are to commence the day after the Bill receives Royal Assent

 

Clause 3 - Schedules

 

This clause provides that an Act that is specified in a Schedule is amended or repealed as set out in that Schedule, and any other item in a Schedule operates according to its terms.

 

 

 

Schedule 1 - Amendment to the Banking Act 1959

 

 

Items 1 and 2 - Conditions relating to variable interest rates on loans and mortgage products

 

Item 1 is a consequential amendment to Item 2.

 

Item 2 inserts a new section 9AD into the Banking Act.

 

Subsection 9AD(1) provides that the Australian Prudential Regulation Authority (APRA) must vary banks' section 9 authorities to give effect to this section within 30 days of the Bill commencing operation.

 

Subsection 9AD(2) introduces the requirement that ADIs are:

·          not increase variable interest rates on loans and mortgages by more than the percentage increase in official interest rates (9AD(2)(a)); and

·          not decrease variable interest rates on loans and mortgages by less than the percentage decrease in official interest rates (9AD(2)(b)).

 

Paragraph 9AD(2)(c) provides that ADIs are not to change their variable interest rates for loans and mortgages except in accordance with paragraph (a) or (b).

 

Loans are to include personal and business loans.

 

Subsection 9AD(3) defines various terms used in section 9AD. "Official interest rate" is defined as the cash rate target announced periodically by the Reserve Bank. "Variable interest rate" means a rate that is advertised by an ADI as its variable interest rate for a loan or mortgage product.

 

Subsection 9AD(4) provides that this new section has effect for a period of 2 years from its commencement.