Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Transcript of doorstop interview: Parliament House, Canberra: 20 October 1992
Download PDF t
PRESS NO. TREASURER RELEASE ------------------~ â‘ EMBARGO TRANSCRIPT OF DOORSTOP BY THE TREASURER, THE HON JOHN DAWKINS MP, AT PARLIAMENT HOUSE, CANBERRA "TUESDAY, 20 OCTOBER 1992 .PROOF ONLY DAWKINS: I will make a few comments and perhaps answer some questions on the Report issued by the Prices Surveillance Authority today on credit cards. You will see from the Report that it reveals what I have been saying for some time, and that is that interest rates on credit cards are too high and there is a capacity for them to come down. Of course the reduction in interest rates is subject to a liberalisation of the laws applying to credit cards and that matter is essentially with the States, as it has been regrettably for far too long. The State Ministers involved, I know, have been awaiting the publication of this Report. I hope that they will now meet quickly. I will certainly be encouraging them to quickly resolve this matter, so that we can make decisions which will allow for a reduction in interest rates applying to credit cards. Essentially, we will give the States one more chance to reach agreement on this matter, otherwise we will give consideration to the recommendation from the PSA, which suggests that the Commonwealth can and should act unilaterally. It has never been my view that we should do that because the States do have a legitimate interest in this area and I would much rather see them reach agreement about how they can liberalise the regulations applying to credit cards, allowing for interest rates to fall. JOURNALIST: How far do you think credit card interest rates should fall and how soon do you think it can happen? DAWKINS: Well it can happen as soon as the law is changed and the banks have an opportunity to restructure the charges for credit cards. What amount they can come down by? I just note that the Report suggests .that interest rates are 4 to 7 per cent higher because of the provision of interest free periods, which really is a function of the fact that there is no ability to make an up-front charge.
2
JOURNALIST: So are fees inevitable?
DAWKINS: Well the Report is very strong on allowing the banks the capacity to charge a fee. I don't think the fees should be large. I don't think they need to be large. But I do think that the cost of administering the scheme should be something which is borne by all credit card holders, rather than just those who
are unable to pay off their cards and therefore end up paying interest -because it is that interest, which those people pay, which covers the entire cost of running the scheme.
JOURNALIST: don't go down?
DAWKINS:
JOURNALIST:
So what happens if fees are tacked on and interest rates
Oh well, that is not a proposition.
Will they go back down and then come back up again?
DAWKINS: The States have been very finn and I think they are right to be firm. But if there is to be a provision to allow for the charging of fees, interest rates must come down and there must be commitments made by the banks on those grounds.
JOURNALIST: What is a fair fee?
DAWKINS: Well I don't know. You know, that is something which will have to be taken up with the banks. But it should be a fee which I think is sufficient to cover the administration of the scheme, not the availability of the credit. That ought to be covered by interest rates in the normal way.
JOURNALIST: Treasurer, what is the maximwn fee you would tolerate?
DAWKINS: I haven't got a figure.
JOURNALIST: Are you telling the States that unless they allow fees to go ahead, then the Commonwealth will do it for them?
DAWKINS: Well what I have said is that this has been rattling around the States for years. They have been awaiting this Report. Now that this Report has become available, I hope they will move to a quick decision on it. Only if they are unable to reach a decision, agreement, quickly would we move to examine the recommendation of the Authority to move unilaterally.
JOURNALIST: J'hat would be through the Banking Act?
I , . ..
3
DAWKINS: Well it will, essentially, be using our power in relation to the banks, maybe corporations, but there are some areas -for instance, credit unions-overwhich we have no control.
JOURNALIST: Would you see the fees being in line with charge card fees?
DAWKINS: Well, look, there are all kinds of fees charged. I know that some of the specialist credit card people charge fee is as much as $50, $100 a year. I am not suggesting anything of that order. Some very small fee, I think, would be appropriate and that would mean that the cost of running the scheme would be shared across all credit card holders, rather than just those who end up having to pay," interest.
JOURNALIST: How can you ensure that interest rates would fall enough to compensate for the fees, short of actually capping the rates?
DAWKINS: â‘: â‘ â‘ â‘ - -W el),_eyef1 the Authority -has â‘ said that there is a margin between 4 and 7 per cent. I am not sure we can be any more precise than that .
" JOURNALIST: Then how can you ensure that, short of actually putting a ceiling on rat¢s in terms of the regulation of that?
DAWKINS: Well no I think this can be done by negotiation. The banks are keen to have a more liberalised regime and I think they can be expected to provide corrunitments about interest rate reductions .
JOURNALI~T: Would you be seeking that corrunitment from the banks
before you agree at ~ least?
DAWKINS: The States have been trying to address this matter with the banks for some time and the banks have volunteered interest rate reductions, in return for up~front fees.
JOURNALIST: You said that the 4 to 7 per cent differential was because there was thi8 interest free zone, are you suggesting that the interest free zone ought to go aS well?
DAWKINS: No. What I am saying is that a function of the interest free period is thatâ‘ some people get access to a credit card for nothing, absolutely nothing. It costs them nothing to get it. It costs them nothing to use the credit because they pay off the credit in the interest free period. What I am saying is
that that means that the cost of running the scheme is paid for just by thoseâ‘ who are unable tq:pay off their debts within the interest free period and, therefore, they are the ones who pay interest and it is the interest payers who carry the whole burden of the administration of the credit card scheme.
4
JOURNALIST: Well why not change that particular provision?
DAWKINS: Well that is what we are talking about. That is exactly what we are talking about.
JOURNALIST: The PSA Report specifically rejects that problem. As it says that iS not something that would be tenable by consumers to do away with?
DAWKINS: No I am not ta.lking about doing away with the interest free period. I am talking about more fairly s~aring â‘ the cost of running the scheme itself through some form of modest up-front fee.
JOURNALIST: out before you act?
DAWKINS:
JOURNALIST:
DAWKINS:
How long are you prepared to give the States to work this
. Well, not long. We have.heen Waiting a long time now. .. ..
Before Christmas? "
Well, let's see.
JOURNALIST: If credit card interest rates can be sustained higher than they ought to be, how can we be sure that other interest rates -retail interest rates -are being driven down by competitive forces?
DAWKINS: Well I think you can look' at that by looking at the regulated rate -the overnight rate -and then look at the spread of interest rates which have -: ~lied, the spread between overnight ~es ' '3nd the normal commercial rates and
you can look at that over tim~ to see whether there has been any excessive charging of interest rates. In â‘ any event, there is a very competitive market out there. There are a huge range of credit f~cilities available to people and I think that part of the system works pretty well. The part which is not regulated by the States if you like. The problem about this area is that it still is regulated by the States in the way in which these particular credit facilities are provided to customers. And what this Report is saying is that that ought to be liberalised, and
I am agreeing with the Report.
JOURNALIST: Do you agree with Mr Fraser comments that we have basically bottomed out on monetary policy at the moment?
DAWKINS: Oh well, I am not goirfg to get into monetary policy.
ENDS
