Steve Irons (Swan, Liberal Party) Share this | Hansard source

I rise to speak on the Treasury Laws Amendment (Banking Measures No. 1) Bill 2017, as one member has previously done, and I'll talk about a couple of his quotes in a minute. The Treasurer announced in last year's budget that the Turnbull government would deliver a financial system that is stronger and safer, a system with consumer oriented outcomes and with healthy competition. Yesterday the member for McMahon, the shadow Treasurer, spoke in the main chamber on this. He said that the Labor Party will be supporting this legislation. He said this is a substantial piece of legislation. We welcome the Labor Party's support. We think it's a great piece of legislation. It's part of our total system to deliver better outcomes for consumers. But he did go on to say in his speech:

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.

He was referring to me, as I was in the chamber. He also suggested that I might raise it and be tempted to run the 'fallacious argument' in the chamber that the Labor government did nothing. I assure the member for McMahon that I won't run the fallacious argument that Labor did nothing. He raised it, so I will leave it in his corner. He was the one who said that the Labor government did nothing.

Anyway, we will move on to the bill and go from there. This government was elected on a mandate to ensure the government implements the right measures for a stronger economy that benefits hardworking Australians. This government has made significant changes through the banking package measures introduced last year to ensure the financial sector is protected and to ensure that there is public trust in the stability of our financial system. This government has addressed key shortcomings that have been witnessed internationally through the global financial crisis, and it has legislated to ensure such events are limited in their capacity to damage the strength of our financial system and framework. No economy or financial system can be shielded from all risk. However, the work that this government has done will cement further protections to ensure unnecessary risk does not damage our system.

The Treasury Laws Amendment (Banking Measures No. 1) Bill 2017 continues the work that this government has done to strengthen our financial system. I applaud the Treasurer and the Prime Minister for their hard work in ensuring we have a financial system not only that is strong but where our legislation has adapted to the evolving and always-moving nature of the sector. This bill helps to ensure that APRA can mitigate risks in the non-ADI sector, which in recent years has internationally caused significant crisis in the financial markets when left unchecked, and to codify APRA's powers as a regulator.

The government announced in the 2017-18 budget that they would act to ensure that the Australian Prudential Regulation Authority is able to respond flexibly to financial and housing market developments that pose a risk to financial stability by providing APRA with new powers in respect of the provision of credit by entities that are not authorised deposit-taking institutions, which are known as non-ADI lenders, to complement APRA's existing powers in respect of ADIs. Under schedule 1 of the bill, APRA will gain a new reserve power to make rules surrounding the activities of non-bank lenders, who are referred to as non-ADI lenders.

As a result of the actions taken by APRA, through the use of macro prudential controls, the activity of ADIs is leading to increased lending activity in the sector by non-ADI lenders. As the Treasurer has stated, these powers are purely a reserve power and not a power of continuous regulation. I will talk further on this later in my speech, as it heavily relates to schedule 2 of this bill. Schedule 2 of the bill will give powers to APRA to collect data from non-ADI lenders. This power will allow APRA to monitor the non-ADI sector. The government is of the view that non-ADI lenders are currently not contributing to any financial stability risks in our financial system, but this potential growth in lending by this sector has highlighted an area in which regulators cannot stem any financial stability risks that do appear in the sector.

The intent of this bill is not to put new regulation on non-ADI lenders when the financial sector is growing. The Treasurer highlighted in his speech on the bill that non-ADI lenders help contribute to the competition that is necessary in the lending market and do not rely on the funding sources that come from Australian depositors. It is therefore deemed appropriate to not consistently subject them to prudential supervision by APRA, given that they have no Australian depositors to protect. However, as recent financial history on the global stage has shown us, the non-ADI lending sector is not free from risks that will potentially damage the stability of the financial system. It was seen in other nations where these risks were left to play out. The costs ended up ultimately being borne by the wider community. These powers are to ensure that APRA curtails these risks should they ever arise from this sector. This is just a reserve power that gives APRA another tool in its toolbox to ensure that our financial system is stronger. It will further strengthen the non-ADI sector by signalling to top investors that the sector is stable and regulated when necessary.

The Treasurer has stated many times in the main chamber and outside the chamber that there needs to be a more delicate approach to financial stability risks. These powers give APRA the ability to effectively mitigate risks of our financial system that are particular to the non-ADI lending sector. I stated earlier that this bill is to bring our financial sector into the 21st century, and schedule 3 is one of the most apt points for the need for this bill. Currently, under the Banking Act 1953, ADIs that have capital below $50 million are unable to use the term 'bank'. Schedule 3 of this legislation will remove this frankly outdated regulation, thus allowing all banking businesses that hold an ADI licence to have access to the term 'bank'. At the moment this sets up a cycle whereby new entrants are unable to reach $50 million in capital without using the word 'bank' but are unable to grow without calling themselves a bank. This simple change will further encourage competition to continue in the sector by putting all banking businesses with an ADI licence on the same footing by allowing full use of the term 'bank'. Schedule 3 will ensure that 58 additional ADIs will now be able to use the term 'bank' when describing themselves. As all ADIs are licensed and regulated by APRA and that all depositors and ADIs are guaranteed by the financial claims FCS, it is common sense to allow all ADIs to be considered of equal stature by the community. This schedule does not change any of APRA's prudential regulation, ensuring that the community can continue to have confidence in the safety of their money and the safety of the banking sector.

As the legislation currently stands, the Banking Act does not contain an objects provision. This provision lays out the purpose and the objectives of the act. Schedule 4 of this bill will insert an objects provision into the current Banking Act, which will allow for APRA's roles and responsibilities to be clearly set out and defined. Another part of schedule 4 is to incorporate a reference in the objects provision to the importance of APRA using geographic and sectoral considerations where appropriate. This is a commonsense change, as seen with the significant diversity of our country's markets. APRA already has this power to set prudential measures on geographic or sectoral lanes. However, the government wanted to ensure that there'd be no doubt as to these capabilities that APRA holds.

Codifying APRA's ability to use geographic and sectoral regulations on our financial sectors will ensure that what the Treasurer aptly described as 'a scalpel rather than a chainsaw' is used in managing stability risks that may appear in our nation. The 'objects' provision in the Banking Act will also reflect recent changes this government has made with the introduction of our banking package measures, BEAR, crisis management and the non-ADI lender rules. This is a simple modernisation to ensure our legislation is current and reflective of the changes in the system. It is not just for this legislation but similar changes are being made to the Insurance Act 1973 and the Life Insurance Act 1995 to ensure these acts reflect where we are at.

Schedule 5 amends the National Consumer Protection Act 2009 to implement changes that are fairer for consumers and businesses alike in the credit card market. As a result, competition amongst credit card providers will improve, as will consumer outcomes in the marketplace. At the moment, the credit card market is characterised as having inadequate competition in ongoing interest rates by providers and some consumers who are overborrowing from providers and underrepaying loans. In particular, there is a small group of consumers who frequently incur very high interest rates due to the ill-suited provision of credit cards. This can result in severe financial hardship for those who should not have received a credit card to begin with. Presently credit card providers are only required to determine whether a consumer can meet the minimum repayments when assessing if a consumer can afford a credit limit. This obviously does not take into account those who can meet the minimum repayments but cannot afford repayments significantly higher than the minimum repayment. This can create the aforementioned group of consumers who are ill suited to the provision of credit cards. Furthermore, these consumers can also face hefty barriers when attempting to switch credit cards, which further acts to reduce competition in the marketplace and makes some consumers feel as though they are trapped. In addition, the formulas used in the calculation of the credit card interest rates can be overly complex, confusing and not in line with consumer and community expectations.

Schedule 5 addresses these problematic concerns by implementing significant reforms, including the tightening of responsible lending obligations and requirements to ensure and enshrine in law that credit card providers must assess whether a consumer can repay the full credit limit within a reasonable period of time, as determined by the Australian Securities and Investments Commission. I have been the chair of the Parliamentary Joint Committee on Corporations and Financial Services since the coalition government was returned in 2016, and that particular committee has oversight of ASIC. I'll be questioning ASIC on Friday about these changes to make sure they implement them. This schedule will also prohibit all unsolicited credit limit increase invitations, including in circumstances where a consumer has previously opted in to receive the invitations.

As I have already stated, the formulas used in the calculation of credit card interest rates can be overly complex and confusing. I am pleased that the calculation of interest rates will be simplified and practices such as the backdating of interest will be banned. The ability for consumers to cancel their credit card or lower their credit limit will now also be far easier. Instead of having to visit a physical office to carry out these tasks, we are mandating that credit card providers will have to provide online options for consumers to manage the way they use their credit cards and determine their credit limit. Consumers will benefit tremendously from these reforms, which will reduce the incidence of consumers building up excessive credit card debt and will ensure the calculation of credit card interest rates reflects the expectations the consumer and the community have.

Furthermore, as articulated in my final point about the work schedule 5 will do, consumers will benefit from the ability to manage their credit cards through online options to lower their credit limit or request the cancellation of their card without the rigmarole of having to deal with a provider for an extended period for what is a simple process. Credit card providers are now required to comply with the prohibition of credit card limit increase invitations and have had to do so since 1 January this year. Credit card providers must comply with the other reforms by 1 January 2019.

I'm confident these measures contained in this bill will ensure a more accountable banking system, a banking system which is strong and fair and one which hardworking Australians can rely upon. Again, I appreciate the support of those on the opposite side and look forward to hearing the member for Kingsford Smith's speech. Without further ado, I commend the bill to the House.

See this speech in context