Adam Bandt (Melbourne, Australian Greens) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

Last week the Commonwealth Bank reported $1.6 billion in earnings for the September quarter.

This was on the back of $5.7 billion in profit for the last financial year and is in line with the staggering $20 billion in combined profits of the big banks.

And it is important to remember that this occurred in the context of the tail end of the global financial crisis and unprecedented government guarantees and other support for the banks.

So it is reasonable to expect the banks to be required to give something in return for this unprecedented level of government support. And it is reasonable to expect that the banks are subject to real competition and are required to provide consumers with real choice.

And it is reasonable to expect that the banks be properly regulated and supervised so that they cannot take unfair advantage of what is effectively a monopolistic position.

Now the banks, of course, do not want to be subject to proper controls and supervision.

In contrast with most developed countries, they want to charge what they like and rely on consumers’ need for banking services to ensure the profits from unfair fees and charges keep on going.

Not surprisingly then, they are sensitive to criticism of their super profits and current practices and it is a measure perhaps of their understanding of community outrage about their profits that they have resorted to hyperbole and insult to defend the undefendable.

The bank CEOs, for example, have sought to characterise such suggestions as akin to proposals from Hugo Chavez and the former states of Eastern Europe.

But, of course, any honest observer of this debate could see the irony of an oligopoly, backed by a government guarantee, complaining about the state sponsored markets of the former Soviet satellites.

Because in reality what the Greens are proposing in terms of obligations by the banks is no different to what exists in many OECD economies and is far less than what is being discussed in many of the G20 countries, including in the United States.

Already many G20 countries have implemented or are examining levies or new taxes which seek to recover the cost of direct fiscal support to the banks provided during the global financial crisis.

And the International Monetary Fund has recommended that even those countries like Australia, which have not had to bail out the banks, consider a levy or financial stability contribution which could pay for any future government support to the sector. They say this should be considered because no country ‘is immune from the risk of future failures and crises.’

They also say that while in countries like Australia the ‘net fiscal costs may ultimately prove relatively modest, they greatly understate the fiscal exposures experienced during the crisis and the wider costs.’

So, while the debate we are having in Australia currently is about choice, competition and what is reasonable to charge the consumer and may seem like a significant shift to the banks, it is in fact not as far down the road of regulatory and financial reform that we have seen in other G20 countries.

Now it may be that in time Australia will need to move to similar measures. The IMF certainly makes a cogent and well considered argument that on average banks have enjoyed an effective 20 basis point subsidy from the public purse by having the government adopt a ‘too big to fail’ guarantee of their activities and borrowings.

That is, because we as the public offered so much support, the banks have borrowed funds much more cheaply even after the guarantee levy paid here in Australia is taken into account.

And we should look at the IMF recommendations and other inputs into the discussion on the post-GFC global financial architecture when considering future recommendations that might be made on reform to the Australian financial sector.

But for now we have before the parliament and in the debate a number of proposals that could begin a process of properly regulating the banks and ensuring increased consumer competition and choice.

These include two Greens bills—my bill, the Banking Amendment (Delivering Essential Financial Services) Bill 2010, which amongst other things caps ATM and exit fees, and Senator Bob Brown’s bill, currently before the Senate, which would place a 24-month moratorium on rate rises above the RBA cash rate.

We also have the proposal on strengthening the ACCC’s powers on price signalling and a new inquiry into the banks and we await the detail on the government’s proposals, which may include support for non-banking institutions.

Other proposals, such as increasing account mobility with a transferable account number suggested by consumer advocates Choice, have also been flagged.

All of these proposals have merit and deserve consideration. None of these proposals will be able to pass the parliament without the support of some combination of the Greens, other crossbenchers and the government or opposition.

So, over the summer break there will need to be some talking, discussion and negotiation on these proposals.

And can I say to the members of the House that the Greens’ door is open and we are ready to talk.

We want to get action on the banks.

We want to get more consumer choice and competition.

We want to ensure the banks only charge their customers what is fair.

We want to see an end to the practice of accumulating obscene levels of profits on the back of ordinary customers.

The first measure that this bill takes is to regulate ATM fees.

The bill prohibits banks from charging their own customers for ATM transactions, locking in current practice. It also caps the charge for using another bank’s ATMs at a level sufficient to cover the cost to the bank of the transaction.

We do not want to refuse the banks the right to charge these fees altogether—as was incorrectly implied in one newspaper over the weekend; we want to simply limit the charge to the real cost to the bank. In 2007, the Reserve Bank of Australia estimated that the average cost to banks for ATM transactions was 75c—less than 40 per cent of the fee they levy upon consumers; the rest is pure profit for the banks.

The proposed basic transaction account in this bill offers banking customers an easy to understand account that provides essential banking services without any hidden profiteering in the form of exploitative fees.

It is time for action on interest rates and this bill will help take such action.

The bill introduces a requirement that banks offer fixed interest gap mortgages and loans with interest rates fixed at a negotiated percentage above the lender’s cost of funds. The banks’ cost of funds will be calculated according to a formula approved by APRA. These so-called tracker mortgages are very common in many other OECD countries, and here in Australia at least one Queensland credit union already offers such a product.

Finally, the bill limits mortgage and loan exit fees to the actual and reasonable costs of early repayment and obliges lenders to make consumers aware of the existence and amount of these fees upfront.

For too long the banks have been free to do and charge what they like.

For too long we have accepted that deregulation and market forces alone were adequate to ensure that banking customers got a fair deal.

For too long we have assumed that the banks, given a free rein, would do the right thing.

The global financial crisis showed the folly of such thinking. And while Australia was immune from the worst, the average Australian was and still is exposed to large potential liabilities.

It is time then for a new social contract on banking that requires banks to accept more responsibility and behave with more moderation.

The Greens will seek to pursue this bill and other measures in the new year.

We will also positively examine other proposals that come before the parliament.

And over the summer, I ask all members of the House to reflect on the fact that to get anything passed there will need to be discussion and agreement, and that those on the crossbenches will almost certainly be essential to that.

If either the government or the opposition wants to know what is important to the Greens, they could do worse than look at this bill and that introduced by Senator Brown in the other place.

In the meantime, this bill is an important start on reining in the banks.

Bruce Scott (Maranoa, National Party) Share this | Link to this | Hansard source

Is the motion seconded?

Craig Thomson (Dobell, Australian Labor Party) Share this | Link to this | Hansard source

I second the motion and reserve my right to speak.

Bert Van Manen (Forde, Liberal Party) Share this | Link to this | Hansard source

Whilst our banking industry is not perfect, throughout the global financial crisis it demonstrated remarkable resilience—aided by the implementation of both the wholesale funding guarantee and the retail deposit guarantee by the current government. It should not be underestimated that this occurred due to Australia’s strong financial position prior to the global financial crisis—a position the current government inherited.

The member for Melbourne’s proposed bill, the Banking Amendment (Delivering Essential Financial Services) Bill 2010, is predicated on seeking to control the level of bank profits and interest rate rises. Restricting banks’ ability to price service offerings profitably and restricting their ability to set interest rates according to funding costs will result in them seeking to achieve savings elsewhere.

As an offset, the banks may seek to reduce interest rates on investment products which, in turn, will put additional pressure on retirees, who rely on the interest income from their term deposit and investment accounts to fund their retirement income. In addition, if the banks offer overseas investors lower interest rates, they may also seek new investment alternatives, thereby reducing capital in the system further and consequently pushing interests higher. Therefore, all the options outlined in the proposed bill, rather than mitigating the risk of further interest rate increases, will produce the opposite effect and actually create preconditions for further interest rates rises.

The questions raised by this bill include whether additional regulations in the banking sector provide the consumer with any significant benefits and whether more regulation will reduce the costs for consumers. The member’s proposed bill seeks to amend the Banking Act in four main ways: that banks offer basic transaction accounts that are free from account-keeping fees and penalty fees and limit other fees to a level sufficient to recover the cost to the bank; that transactions at a bank’s own-branded ATMs are free of charge; that charges for the use of the bank’s ATMs by customers of another authorised deposit-taking institution are capped at the cost of service provision; and that banks provide a debit card linked to the account.

In the second reading of this proposed legislation in the Senate, Senator Bob Brown stated:

Recently, consumer organisations have successfully campaigned for a better deal from the banks. The banks have responded to some extent and voluntarily improved their approach to fees in some areas.  For example, now most banks do not charge their own customers for the use of another bank’s ATMs, even though it is open to them to do so.  Other banks have dropped overdrawn account fees and reduced their other penalty fees.  A number of banks have also introduced fee-free or low fee basic accounts for low income customers.

A quick check of the transactional products available through the major banks and some of the smaller banks and credit unions shows that most institutions already provide these types of accounts. The requirement to provide a real-time warning of a proposed fee and the ability to cancel the transaction already exists for ATM transactions when conducting a transaction at a foreign ATM.

The other requirements, particularly the requirement to advise of a fee in the event of an electronic or face-to-face transaction, will impose additional burdens on merchants and service providers and potentially be embarrassing to the account holder as this would be a discussion conducted in the public arena. I certainly would not be happy to be standing in the queue at Woolworths paying for my groceries when the checkout operator has to ask me whether I am happy to proceed with the transaction because a small fee is payable. Seriously, am I going to say no and put all the groceries back? I think not, of course.

As an example of what these fees pay for, I set up a new online account over the weekend and within the space of half an hour my bank suspended the credit card used for the payment pending confirmation from me of the transaction. I phoned the 24-hour service line and confirmed the transaction, at which time they removed the suspension and also suggested an alternative account type to reduce my monthly fees. This is a great example of why the proposed bill is not required. This bill is just another example of unnecessary legislation that is seeking to absolve customers from taking personal responsibility for understanding and managing their own financial affairs. Terry McCrann, in the Courier Mail on 18 November, wrote:

The Greens’ stupidity is exquisite at both the micro and macro levels. Ban ‘foreign’ ATM withdrawal fees. The effect will be to ban most ATM withdrawals as the banks stop allowing ‘foreign’ withdrawals.

The end result would be reduced consumer access and flexibility. The other major problem with this bill is the attempt to place restrictions on interest rates that banks charge on their loans. This would be the final nail in the coffin for consumers and small business in being able to obtain finance at reasonable rates.

Already small to medium business borrowers, despite providing all the same security and in most cases more security than a home loan borrower and through the necessity to provide personal guarantees and charges over business assets, are paying a significantly higher interest rate on their business loans than home loan borrowers. This differential is made all the more ludicrous when you consider that the small to medium business owner, who has a home loan and a business loan, will be paying two different rates of interest yet both loans will have the same security, and repayment of both will be funded from the income generated in the business.

Phil Ruthven from Access Economic noted in a presentation earlier this year that the primary driver of recessions in Australia was not a fall in consumer spending but the direct result of the fact that business had lost access to capital to continue to grow and develop. The government’s response to the global financial crisis has reduced competition in the provision of banking services in Australia and, as it continues to borrow $100 million or more per day, is continuing to put upward pressure on interest rates and is reducing the capital available in the market for small to medium business. This capital would be far better allocated by business as it would seek to utilise that capital productively to employ staff, manufacture goods and make a profit.

The coalition, by contrast, is seeking via its nine-point plan to create a positive framework in which competition is enhanced via: an investigation by the ACCC of anticompetitive practices such as price signalling; an investigation by APRA into unnecessary bank risks to pursue short-term returns; regular reporting of bank interest margins, returns on equity and profitability; more government support for small lenders; improved liquidity for the mortgage backed securities market; a complete review of the financial system; further simplification of the Financial Services Reform Act to reduce cost and complexity; an investigation by APRA into the banks’ lending practices for small business; and investigation as to whether banks should be able to issue ‘covered bonds’. It is through positive market based solutions, together with considered regulation and the government removing itself from the market by returning to budget surpluses, that a better outcome will be achieved by all parties to allow our economy to grow and prosper.

Craig Thomson (Dobell, Australian Labor Party) Share this | Link to this | Hansard source

When I seconded this motion I did so to allow debate on what is a very important issue. While I do not agree with the Banking Amendment (Delivering Essential Financial Services) Bill 2010, I think it is important that we have this debate here tonight. It is for that reason that I seconded the motion.

One of the things that distinguishes this bill which the Greens have put forward from the nine-point plan which the opposition have put forward is that at least the Greens have taken some time to sit down and think about what the issues and problems are and how to address them. From the shadow Treasurer we got a nine-point thought bubble, which went through what he could think up on the day. In fact, he did not even think it up on the day; he took a couple of days to come up with those nine points. He was all over the place on the first day. He got a little bit better as time went on, but he was still all over the place trying to exploit this issue for cheap political gain. He is not thinking about, in any sense, the long-term consequences of what he is actually proposing. I acknowledge that that is in stark contrast to this bill that has been put forward with some proposals for the right intention.

This government has been looking at and acting on competition in the banking industry for some time. I was chairing an inquiry into banking competition in 2008 when the global financial crisis came. Of course that changed a whole range of issues that this country and the international economies had to face. We were talking then about bank survival. One of the things that we need to recognise is that Australia, through its regulations, was able to come through that banking crisis with its banks intact and still AAA rated. By the end of the global financial crisis there were only seven banks in the world in that position, and four of them were Australian. That is worth acknowledging at the start.

The government also looked at ways in which we could come up with competition, and the Treasurer took up those recommendations. There was one which was most important. What we saw in the nineties, through securitisation, was cheaper loans being made available through second-tier lenders. Once the global financial crisis came, securitisation and the wholesale market totally tightened up. This government invested over $16 billion in AAA-rated RMBSs to make sure that they were available for those second-tier lenders to be able to continue in the market and play some role in competition, because at the end of the day what is going to drive cheaper interest rates and better service for consumers is competition in this industry.

It is not about regulating to such a degree that competition is taken out. We need to provide the right environment—and some of that involves some regulation—for competition to flourish and we have been able to do that in some areas. For example, this bill goes to ATM fees. The reforms that we put in place in ATM fees have seen a reduction of over $120 million in fees taken from consumers. That has come about through regulation and also by making sure that there is competition in ATM fees, and it is important that we make sure that that is able to continue.

We also need to recognise that there are still global difficulties with wholesale funding, and they will continue while the global economy is in the state it is. The Treasurer has announced that a second tranche of reforms is coming. Those reforms will be aimed squarely at putting Australian consumers in a better position, to make sure they can take advantage of competition as it emerges post the global financial crisis. That is the best thing that we can do. We need to make sure that switching is, and continues to be, an option. Sometimes there is reference to the number of people who have switched. The reforms that came through last time ensured that switching was an option and that those who did not switch were given better conditions by the bank they stayed with.

This is an important debate that we needed to have, and I am glad that we have had the opportunity to have this debate here today.

Andrew Wilkie (Denison, Independent) Share this | Link to this | Hansard source

I rise to condemn the arrogant behaviour of Australia’s big four banks and to speak in support of reform of Australia’s banking sector. I, along with many Australians, was shocked on Melbourne Cup Day when the Commonwealth Bank announced a rate hike of 45 basis points, almost double the official rate rise. But, regrettably, I was not surprised when ANZ, NAB and Westpac all followed suit, each putting their pursuit of profit above the public interest as they raised their rates over and above the Reserve Bank’s one-quarter of one per cent.

The banks cried poor and blamed rising funding costs, but these are the same corporations enjoying record combined profits of more than $20,000 million a year—yes, well over $20,000 million a year. As an argument, funding cost pressures simply do not stack up, because the banks are raking it in and there is simply no basis for their claim that they are in strife. Moreover, the bosses of Australia’s big four banks earn between them $44 million a year—yes, $44 million a year between four individuals—and that is simply outrageous. Here we are picking up the tab for billion-dollar profits and million-dollar salaries, and we are not happy about it. Something has got to give.

The balance needs to shift back to the community, which not too long ago helped these same banks survive the global financial crisis. The banks came running when they were in trouble and the government gave them a hand. Now it is the banks’ turn to return the favour and give the Australian community a break. With their combined $21-plus billion profit a year, a bit of consideration for the public interest is not something that is going to break the bank. It is time for change and, since the banks will not act, it is time for political leaders to act. I for one will support any sensible reform which reins the banks in.

Of course the banks say that we do not understand how it all works. ‘It’s complicated,’ they say. They call outspoken politicians ‘populist’ and tell us to butt out and stop bashing the banks. Well, I will not buy that, Mr Deputy Speaker. There is some bashing going on all right, but it is not the banks getting bashed; it is their customers. It is my job to stick up for my constituents, not for the banks, and that is exactly what I am going to do.

In my electorate of Denison people are doing it tough right now. Power bills have risen and they are going to keep on going up. A pensioner from Moonah wrote to the Mercury newspaper recently recounting how she had received a $900 winter power bill and to conserve energy she was only using two rooms in her house. That is no way to survive, let alone to live. The constituents of Denison are also paying more for other essentials like water and housing. They need a break, not another demand for more money from corporations raking in the profits. And it is not just people paying off mortgages who suffer from these rate hikes. It is also the businesses, whose customers have less money to spend, and the children, who see less of their parents, who have to work longer hours. It also includes young people trying to buy their first house and tenants whose rents rise with interest rates.

I am pleased to see that some communities are fighting back. I was delighted to lend my support to a push by the Glenorchy community to buy a franchise of its local Bendigo Bank to create a community bank that will return half of its profits back to the local community. I will do my bit. I have pledged to become a founding shareholder, and I have already opened an account into which I will deposit my electoral allowance. I applaud the shadow Treasurer for taking a stand of sorts with his ideas about reining in the banks. I see merit in the shadow Treasurer’s approach. Now we have the Greens’ commendable proposal in the bill that we are debating today, and again I see merit. Disappointingly, we have seen little from the government, except a vague promise of a plan some time soon. The Prime Minister stands on the world stage and complains that banks are ripping off Australians; but, so far, she has done nothing to stop them, and that is not good enough. Again, I remind the government that it is well behind time for action on the greedy banking sector and that I will support any sensible reform which reins it in.

Debate adjourned.