Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Hansard source

The Labor Party will be supporting this legislation. This is a substantial piece of legislation, and I won't take the House through every element of it, but I will comment on significant elements. Firstly, these measures in relation to credit cards are long overdue. We support them on this side of the House. In fact, we have been calling for these measures for a long time. These measures will improve consumer protections, and it's disappointing, if anything, that consumers will need to wait until 2019 for most of these protections to come into force. That is particularly disappointing when you consider that it was in 2015 that a Labor-led Senate inquiry first urged changes to credit card regulation, which was in response to recommendations to this inquiry that the Treasurer promised to progress these changes to credit card regulation. It's been a long time coming.

That was May 2016 when the government promised to bring forward draft legislation 'in the near term'—and now, in the 2018 sitting year, we finally have the legislation. We have been pushing for these reforms consistently since then and are glad that they are now being introduced to the House. Despite the May 2016 promise of draft legislation in the near term, it wasn't until August 2017 that we saw draft legislation. That means we won't now see most of these protections come into place until 2019 . For a Treasurer who often boasts that he is taking an action-now approach to the banks, it is actually action-later, in 2019. He will get back to us shortly when it comes to credit card reform; nevertheless we welcome the fact that they are finally coming into play.

One of the changes to credit cards is the tightening of the responsible lending requirements for credit cards to require that the suitability of a credit card contract is assessed on the consumer's ability to repay the credit limit within a certain period. That period is to be set in a legislative instrument made by ASIC. We'll be watching closely to see what this period is. It's very important that Australians are properly protected from predatory or unsuitable lending.

Another of the changes is the standardisation of the way credit card interest is calculated. CHOICE has said that the way the banks calculate credit card interest is 'mind bending'. When respected governance adviser Phil Khoury did a review of the code of conduct of banking practice he looked at the ways that banks were applying credit card interest. He looked at some practices and found that few customers would be aware that they were happening at all. Khoury described some interest calculation practices as unacceptable and substantially unfair and that, if understood, would be seen as just plain tricky. This is a very respected reviewer.

Under this bill, credit card providers are prohibited from imposing interest charges retrospectively to a credit card balance or part of that balance that has the benefit of an interest-free period. Again, we welcome these changes to the way credit card interest is calculated. Again, they are long overdue and we've long been calling for them.

We are also pleased that banks will now be required to allow online cancellation of credit cards. This makes eminent sense. You can get a credit card online quite easily—and I'm sure all honourable members have done it—but if you try to cancel a credit card online, it's very difficult. It shouldn't be that way. This means that, if a customer sees a card that is a better deal, they should be able to move over to that better deal with greater ease. Additionally, customers end up hanging onto old cards that they do not intend to keep, with access to more credit than they otherwise need and obviously often with annual fees and other ongoing costs, which add up over the years to a substantial amount of money. So it does make sense to require banks and card issuers to have simple online cancellation of credit cards.

We note that, under this bill, a bank may not be required to cancel a credit card where there is still an outstanding balance. Again we need to ensure that this bill is monitored to make sure that the impact of encouraging customers to switch credit cards is real and to ensure that it enables customers to better ditch unsuitable cards.

We note that this bill will also require banks to allow a reduction of credit card limits online. Again, this is very sensible. Again, the same principle applies: you can increase your credit limit very easily, so you should be able to reduce your credit limit. If a consumer has the insight, the awareness, that they have too much credit available to them and it might not be easy for them to manage, actually in doing the right thing and taking control they should find it easy, not hard, to reduce their credit card limit. So that is very welcome. The Consumer Action Law Centre has drawn attention to the fact that, as the bill is currently drafted, banks are not required to reduce credit limits below the minimum credit of the card. I met with them today. We'll continue to monitor that closely. If further improvements are needed, we'll make those suggestions in due course.

Schedules 1 and 2 of the bill will give APRA powers in relation to non-ADI lenders. These powers, which have been described as reserve powers, are designed to be used should the activities of these lenders pose a risk to financial stability in the future. The bill also gives APRA power to collect certain data from these lenders. ADI lenders, such as banks and credit unions, are subject to APRA's prudential requirements and ongoing supervision. These new powers for APRA are proposed in recognition of the fact that APRA has responsibilities in relation to stability of the Australian financial system which are consistent with its core mandate of protecting depositors.

We note that some non-bank lenders have raised concern about the scope of these powers. We recognise that non-ADI lenders can play an important role in terms of ensuring competition against banks. Indeed, this is an increasing element of our financial system—there is disruption with these new providers, peer-to-peer lenders and others. This includes in relation to business lending. As an example, innovative non-banking lenders can play an important role in providing finance needed to small business owners to expand. This industry is growing. I have seen some of these enterprises myself and watched the quite efficient way in which this occurs.

We note that, in response to the concerns raised about the scope of the powers in the exposure draft legislation, the application of these powers has been narrowed since the exposure draft, and we would regard that as being appropriate. The explanatory memorandum states that these powers are intended to be reserve powers only to be used where there is material risk to the stability of the financial sector. According to the explanatory memorandum, it is not anticipated that these powers will need to be used in the immediate future and will be there to respond to future developments.

Schedule 3 will allow smaller ADIs to use the word 'bank' in their business name, should they choose to. As the EM points out:

… the changes will align community expectations in respect of the use of the term 'bank' with the fact that ADIs are prudentially supervised by APRA and deposits are covered by the FCS—

the Financial Claims Scheme. Under this change, all ADIs can use the word 'bank' in their business name unless APRA, for whatever reason, has issued a determination to the contrary. Currently, APRA permits only ADIs with tier 1 capital exceeding $50 million to use the terms 'bank', 'banker' and 'banking'. There are a number of smaller ADIs who would benefit from the use of these terms, and I note that the Customer Owned Banking Association, which represents credit unions and building societies as well as mutual banks, has been particularly supportive of this change. Again, I do welcome this change. This is sensible. I well remember building societies transferring to big banks when I was a boy, and I had an interest in this matter and learnt why it was the case that you might transfer from a building society to a bank. Building societies are much rarer these days. But this is a sensible change. The member for Port Adelaide, here at the table with me, shares my deep interest in these matters; I'm sure he had a similar experience.

On bills like this, the government always seems to have talking points—and perhaps the next honourable member to speak might go there—which say that the previous Labor government did nothing. That's often what's in the talking points.

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