Craig Kelly (Hughes, Liberal Party) Share this | Hansard source

I am pleased to speak tonight on the Competition and Consumer Amendment (Payment Surcharges) Bill 2015. When I first came across this legislation, at first blush, I had some difficulty in supporting it. At second blush I also had some difficulty supporting it. But I do support the legislation and, in the time available, I would like to go through what my concerns are, why I had some concerns about this legislation and what got me over the line to support it.

Firstly I believe in a simple principle: all pricing decisions of businesses in our free market economy must be left to the individual business. It should not be up to governments to interfere and to try and put price controls on businesses. It is a simple thing: businesses must make those decisions and be left to make those decisions by themselves. We think parliamentarians and members of parliament should get in there and do something, make the prices fair, interfere with the market and put on regulations. If you want an example of what happens when you go down that track, you go to the socialist utopia of Venezuela, where their government decided that they wanted to have fair prices on toilet paper for consumers. Yet you cannot buy toilet paper in Venezuela. There is a well-documented toilet paper shortage. It is well known that the final stage of socialism is when you run out of toilet paper, as they have in Venezuela. That is my first concern. We should simply be leaving these pricing decisions to the market and trusting the free market.

The second concern I have with this bill is the definition of an 'excessive' surcharge—that it exceeds the costs that the merchant charged for that surcharge. One thing that has not been noted in this debate is that merchants have a risk when they process someone's credit card that is a different risk profile from when they receive cash from that customer. Some businesses may prefer the credit card because the money goes directly into their bank account. But with that comes an additional risk profile that is known in the retail industry as a chargeback.

The way that works is: if someone goes into a retail shop and uses their credit card instead of cash they get greater rights as a consumer. They are able to ring up the credit card company later and make a complaint that there was some problem or defect with the goods, the goods were not delivered or they were not as specified, and the bank then puts the obligation back on the merchant to try and justify why they should not make that chargeback. In many cases the merchants find that they are guilty until proven innocent. So they not only get the money chargeback by the credit card company; they get a fee and a surcharge for doing so.

There is a second risk for merchants that operate online businesses or take orders over the phone. If a merchant takes an order over the phone and gets a credit card number over the phone where they do not physically sight the credit card, that transaction is liable to be fraudulent. You do not know if that person owns that credit card or whether it was someone working at a restaurant that sighted that credit card number, jotted it down, jotted down the name, jotted down the expiry date and then went and ordered things online. In those circumstances the merchant can be charged back up to two years after they have had the money deposited in their account.

I would like to give an example from before I came to this place. I was the export manager for the company I was working with. At that time we were exporting a lot of goods to the Middle East. Of course, the Middle East payment, which was received by letter of credit or deposit, was of concern. One day an order inquiry came in over the internet by email for a certain amount of goods, and the quote went back to these people. Then they tried to negotiate a discount, and we gave them a small discount. Then they asked: could we give them a free-in-store price into the Middle East? As we often did, we would negotiate with one of the freight forwarders, get a cost for the freight, put that into the price and say to the customer, 'Here you are. Would you like to go ahead with this transaction?' In this circumstance, the cost was around $12,000 or $13,000. The customer was ringing up, saying they needed the goods urgently. I said, 'Well, we need to get your payment.' They said, 'Okay, we will pay you by credit card.' So they gave us a credit card number over the phone with a name and an expiry date—of course, there was a bit of suspicion that went on. We put that transaction through our credit card processing machine, the transaction was actually authorised and that $15-odd thousand went into our company's bank account.

So the money was sitting in the company's bank account. The customer, whose order we have taken in good faith, was ringing up, saying, 'Urgent, urgent! I need my goods; get them away. You've got my money; you've got my payment.' But the fact was that, because we had not been able to sight their credit card, for up to two years after that transaction occurred the credit card company could claw back that money. What would have happened if that had gone ahead? There was not only the cost of the sale that we would have lost; we would have ended up paying the freight as well; plus there would have been a charge-back fee from the credit card company. This can happen up to two years after.

Fortunately, something twigged and I was able to make a few telephone calls to some of the banks, and someone advised me that this credit card transaction, even though we had the money in our account, may not have been a legitimate sale. So we held up the shipping, only to find out that that was exactly the case—it was a fraudulent transaction. The people at the banks I spoke to at the time said, 'This happens to hundreds, if not thousands, of merchants in this country.' They get caught in this fraud, because that is an additional risk that they have through accepting a credit card. With all things, that risk must be able to be priced. So I hope, when the Reserve Bank or the ACCC sit down and look at what they determine as an excessive charge, they allow the merchant to make a provision for the risk they face that they will have a charge-back against that transaction.

Thirdly, there is the issue of price discrimination. We know that, unfortunately, despite a long argument by the forces of good working for small business, we have been unable to create an effective law against anticompetitive price discrimination in our Competition and Consumer Act. What can happen is that a customer can walk into a shopping centre, go into one of the larger retailers, make a transaction with their credit card and then go into a smaller competitor, buy exactly the same goods at the same price and run it through an identical machine—it is all electronic—but the small business is charged higher fees. So it could very well be that a small merchant might decide, if he finds he is a victim of anticompetitive price discrimination by one of the credit card companies, to put a higher surcharge on that credit card company as a way of retaliating and encouraging consumers to use a credit card company that is not engaging in anticompetitive price discrimination. This legislation would prohibit it.

For those reasons, I had some concerns about this legislation. However, what got me over the line was the fact that we also have in our Competition and Consumer Act something that is very important in our free-market system: provisions against misleading or deceptive conduct. When anyone in trade or commerce engages in misleading or deceptive conduct, there is a specific provision in our competition act that prohibits it. It enables such contracts to be ruled invalid or for the courts to rewrite contracts or cancel them altogether if there has been misleading or deceptive conduct.

I noted that, in his second reading speech to the bill, the member for Mitchell, the Assistant Minister to the Treasurer, said—and this is what got me over the line:

Where a merchant charges a customer a card surcharge, that carries with it an irrefutable representation that the merchant is seeking to recover his or her costs.

The point is: if a merchant imposes a charge that is higher than just cost recovery, they are actually misleading the consumer—and that is the only reason that this legislation can be justified. If, as a merchant, you make the representation that you are including a credit card surcharge, it is implied that it is simply a cost-recovery exercise. That is the only reason I can support this legislation. I cannot, in good faith, come in here and support legislation where we, as government, are attempting to put price controls on companies in our free market. History shows that does not work. Even though we may think we are doing a wonderful thing and we may think we are helping the consumer, wherever you put price controls you distort the market and the ultimate loser is the consumer. But, because this legislation goes to those misleading or deceptive conduct provisions of the act, it is legislation that I can support.

With that, I just hope that, when the ACCC or the Reserve Bank sit down and look at the cost to a merchant, they give full consideration to the risk—because there is a real risk for merchants. We have seen that in a recent example: Dick Smith being placed in administration. People purchased Dick Smith gift cards and, if they paid cash, basically they will go to the end of the line with the other unsecured creditors. But if they have bought that gift card by using a credit card, they can go to their credit card company and say that they did not get the goods. The credit card company has the power to claw that money back lawfully from the retailer. So there is a higher risk for any retailer when they accept a credit card from a consumer. If we believe in the price mechanism and the free market, we must allow those merchants, those retailers, to price that risk in when they set their credit card fees. This is most important in our price system. As I said, I hope that the ACCC and the Reserve Bank sit down and look at the different risk profiles.

The other reason I can support this legislation is that most of the examples cited involve the airline and the taxi industries. They are not necessarily industries where clawbacks from the credit card companies are a significant issue. It is more where smaller merchants are supplying electronic goods, furniture and other types of goods such as household appliances, jewellery and computers. Such goods are easily disposed of for cash. They have a greater risk profile. So merchants also need to be aware of that. They need to price accurately to determine the risk. Ultimately, we should be leaving all those price decisions up to the individual merchants. But where there is a chance of misleading or deceptive conduct, we need to have legislation. Therefore, I am happy to support this bill.

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