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Tuesday, 21 June 2011
Page: 6710

Mr CIOBO (Moncrieff) (18:04): I am pleased to rise on the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011, not because I am fervently in support of the bill but more broadly because I believe in policy measures that in broad terms are supportive of improving consumer protection and enhancing consumer transparency. When it comes to the single biggest credit items that affect most consumers and most people in the community, home loans and credit cards are among them. That said, the government's bill that is currently before the House is not a bill that the coalition will be opposing, although it is also not a bill that we are completely supportive of.

The reality is that, in typical Labor fashion, the bill that is before the House wades its ugly way into the marketplace and sets about ensuring that there are a whole raft of new legislative protections, as they are labelled, to try to policy-manage and effectively legislate their way to a better market outcome. The question is: could this have been achieved through other methods? We had raised a number of concerns when the first iteration of this bill was put before the Australian public. We raised concerns about the approach that Labor was adopting. At the time the government said that our concerns could not be incorporated into the legislation because they would have undermined and eroded the value of the legislation as the Labor Party saw it.

What we have seen though, following an inquiry into this particular bill by House of Representatives Standing Committee on Economics, a committee of which I have the great fortune of being deputy chair, is that a number of the recommendations the committee has put forward and a significant amount of the evidence that came forward from witnesses before the committee have now been incorporated at the eleventh hour into the bill before the chamber this evening. So it has come to pass that a large number of the reforms which were sought by the coalition and which were ruled out by the Labor Party have now been incorporated into the legislation which we are currently debating. That said, though, in broad terms—let me stress that it is in broad terms—I am supportive of measures that are contained within the bill to do a number of key things. The first is the requirement for lenders to provide key facts sheets for standard home loans as well as for credit cards. These are important measures which enhance consumer protection insofar as they provide what is effectively a ready reckoner. The reality is that consumers receive great wads of information. My constituents on the Gold Coast in my seat of Moncrieff and all of us in this chamber know that when you have interactions with banks, when you have dealings with financial houses, you receive wads and wads of paper: statements of advice, policy disclosure statements and all those types of items. To be able to distil it down to its most basic elements, which is effectively what the key facts sheet does, is a welcome addition to the arsenal that consumers have when it comes to determining which is the best home loan or credit card, what the pitfalls are and what the various charges associated with that credit card or home loan are. In that respect I welcome it.

There are of course some other reforms that have been made with respect to prescribing rules for approval of the use of credit cards above their credit limit, specifying an allocation hierarchy for payments made under credit card contracts and restricting credit providers from making unsolicited invitations to borrowers to increase the credit limit of their credit card—as well as introducing a requirement for lenders to provide a key facts sheet for credit cards, as I said. A number of these subelements of the legislation are important because they have a material impact on the functioning of credit providers. In particular, one is straightforward and is supported by this side—that is, the specification of an allocation hierarchy for payments made under credit card contracts. It is certainly worthwhile that there be an allocation hierarchy such that repayments made on credit cards go to paying down the debt that attracts the highest interest rate. That is a smart step. It is a step that we are supportive of. It is a step that is proconsumer and therefore of benefit.

But also contained within this legislation are issues of concern. One of them, which has now been amended at the eleventh hour, was about rules surrounding the use of credit cards above their credit limit. I am Deputy Chair of the Standing Committee on Economics. We heard evidence from a number of witnesses that highlighted their concern about what the impact of Labor's legislation would have meant. In the first instance—this was an obvious concern and one that I raised with witnesses as well—was the issue about whether, as a consequence of Labor's legislation, we would see a situation where credit providers provided a higher than usual credit limit to a customer, expecting that subsequently they would be unable to raise the credit limit unless they had jumped over all the hurdles that this legislation effectively put before them. The clear and unequivocal answer from witnesses was: yes, the consequence that was most likely as a result of this legislation would have been a higher initial credit limit. So one could rightly wonder why the Labor Party was undertaking this.

Certainly, as with many things Labor attempts to do, it is driven by a sense of purity, I guess, in some respects about the outcome that is being sought. The reality is, though, that the application is often worse than the affliction which Labor is attempting to address in the first instance. That was the case with the original iteration of this legislation. Now that has been amended so that consumers can give their consent to there being, for example, additional fees and charges associated with going over their credit limit as well as with respect to the way a credit limit is assigned in the first place. In that sense, I am pleased that the Labor Party has seen the common sense that was put forward by the coalition and incorporated those changes into the legislation.

A second aspect of this that causes me some concern is with respect to so-called unsolicited invitations. As a matter of principle, I do not really understand why we feel it necessary for there to be legislation with respect to unsolicited invitations. The reality is that anyone who watches some television, listens to some radio or reads some newspapers sees advertising for all manner of products and services. It is part of daily life. When you drive in your car, you see billboards. When you turn on the television, you see advertisements. We are not compelled to race out and purchase all those items as a consequence of seeing advertising. Indeed, for the manufacturers and service providers that are advertising in a market economy, I think it is part of their routine business. In fact, I think most people have become desensitised to a large extent to advertising. Yet for some reason the Labor Party takes the view in this legislation that we are able to withstand advertising in all manner of other things but not when it comes to credit card limits. When it comes to credit card limits, apparently we are all suckers and immediately sign up to increasing our credit limit on our credit card.

Given that there are criminal sanctions under the legislation, at least in its first iteration, which apply as a result of an unsolicited invitation to increase your credit limit, you have to start scratch your head about whether or not this is a little heavy-handed. My personal view is that it is heavy-handed. My personal view is that it is crazy to be saying to financial lenders, 'Don't you dare provide an unsolicited credit offer, because if you do that then you're in breach of the legislation, and if it is a personal employee they're in breach of the legislation and potentially subject to criminal sanctions.' It is madness. Why is it that consumers apparently have the ability to discern what they should consume when it comes to other products and services but they cannot do it with respect to credit cards? I think it is one bridge too far. I think it is unnecessary. In that sense, I certainly have some concerns. It also lacks common sense.

Again, a key part of the testimony from witnesses before the committee when we undertook the inquiry related to whether or not it was commercially sound for a financial lender to lend a consumer more money than that consumer was able to pay back. Of course the answer is no. That is not a sustainable business model. The reason most borrowers are not in a situation to repay their debts is typically because of a life-changing event like the loss of employment. That typically is the reason why people get themselves in hot water, and it is often unforeseen. Given that that is the key driver of many of the defaults, especially of credit card borrowers, you have to question why this subelement of this legislation is necessary. Given that it is commercially unsound to do it, and therefore you would assume that there is not a demand in the marketplace for it, why would it happen?

That is not to say that there are not some fly-by-night operators, and there has been some evidence that there has been at a very minor level. So again the question is: why regulate an entire industry when you are attempting to address a very small percentage of those that are effectively, for lack of a better term, breaking the rules and operating in an unsustainable way? That notwithstanding, I guess it does provide the opportunity for the Labor Party to beat their chests and claim they are all about the consumer and all about empowering people. But what consumers need to know is that they end up paying for all this red tape, they end up paying for all these protections, they end up paying in some way, shape or form for all of the compliance that is associated with all of these additional regulations. It is consistent with the big government approach of the Labor Party.

However, I outline, as I said, that there are a number of aspects that I am broadly supportive of, especially with respect to the key fact sheets and particularly with relation to the allocation hierarchy for payments. In that sense, whilst I certainly do not commend the bill, as a member of the opposition I am also not totally opposed to it.