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Monday, 22 September 2008
Page: 8203


Mr GEORGANAS (8:05 PM) —I too rise to give support to the motion before the House on the scandalous conduct of some of the financial institutions that are tempting members of the public, often those with the most limited capacity to service debt, to accept offers of increased credit at interest rates that are, I am sure, the highest in the financial market. This is a big issue. It is an issue as big as the debt that people accumulate. It is as big as the volume of money that is wasted on extraordinarily high interest rates and as big as the assets that can be lost through default. It is as big as the hole that unaffordable debt can leave in a person’s life.

The Reserve Bank of Australia observes that the ratio of household interest payments to disposable income has skyrocketed in the few years since 2003. For decades the interest payments ratio has been in the vicinity of six to eight per cent of disposable income. Since 2003—in the last five years—this has skyrocketed to between 12 and 14 per cent. The limits of credit card accounts without an interest-free period have increased from $15 billion in 1995 to $50 billion in 2002 and to $110 billion this year. Outstanding balances on credit and charge cards have doubled in the last six years from $22 billion to $44 billion.

Interest charged on credits cards has, for a number of years, been in the vicinity of eight to 10 per cent more than the standard variable rate. People are currently paying 19½ per cent instead of 9½ per cent. Financial institutions and loan sharks continue to issue credit cards without regard to people’s capacity to pay, offering quick but very expensive cash availability, costing many people the proverbial arm and a leg for the convenience of accepting offers of readily available cash, right there and then.

This is an issue that seriously affects many Australians of all walks of life and in most income brackets, but of course it has the greatest potential to devastate those with the most limited means of servicing and paying off debt. The House of Representatives Standing Committee on Legal and Constitutional Affairs heard last year of the failure of self-regulation within the financial industry to impede irresponsible lending practices that continue today—whether it is the practice of targeting elderly persons who have equity in their own homes and offering them credit cards to transfer equity into very expensive debt, or the practice of targeting others on limited or fixed incomes who do not even have the asset base to cover financial difficulties should they arise. This particular section of the finance industry is geared to maximising financial returns through debt servicing and even penalties for breaches of conditions, maximising their return on the back of unscrupulous manipulation and exploitation of those who just cannot say no.

This issue has been around for a long time. Parliaments around Australia know of this issue and the difficulties that unsolicited credit offers can cause for many of our fellow Australians. The traditional question always needs to be addressed. Within Australia we have distinctions between the jurisdiction of the states and the territories on the one hand and the Commonwealth on the other. Recent banking issues raised within my electorate office pointed to the fact that mortgage lending by the banks and credit unions is a Commonwealth matter but loan sharks and similar businesses were a matter of state consumer protection legislation. This distinction was seen a few years ago when the Australian Capital Territory passed the Fair Trading Legislation Amendment Bill designed specifically to meet the needs of the financially vulnerable in the ACT community.

A coordinated and comprehensive approach to financial institution practice is needed within Australia. Having state laws regulating financial businesses operating products within state boundaries simply does not make sense. That is why this Rudd Labor government has had its green paper on financial services and credit reform in circulation with a view to doing what is identified in its title: ‘Improving, simplifying and standardising financial services and credit regulation’. The purpose of this paper is to consult stakeholders about a range of financial services and credit reform initiatives, including consideration of the most appropriate regulation of a range of remaining credit products such as credit cards, personal loans and microlending. These issues, from key initiatives included on the COAG reform agenda and the outcomes of the paper consultation process, are due to be put to COAG in the very near future.

I would like to congratulate the government for moving on this issue. I look forward to learning of the outcomes of the government’s consultations in support of the little players, the vulnerable and those who need every bit of help they can get when dealing with the more unscrupulous within the finance industry. The Commonwealth should now look to what we can do. There may be those who simply blame those consumers who sign the form for bringing financial difficulties upon themselves, or those who do not do the homework or exercise the self-discipline to refrain from accepting an offer to triple their available credit. (Time expired)