Steve Irons (Swan, Liberal Party) Share this | Link to 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.

Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Assistant Minister for Treasury) Share this | Link to this | Hansard source

We do support this bill, the Treasury Laws Amendment (Banking Measures No. 1) Bill 2017. It is a bill that amends APRA's jurisdiction and its powers to make rules with respect to non-ADI lenders, particularly to secure stability and reduce risk in the lending market in Australia.

The importance of financial stability cannot be overestimated. It's critically important to the maintenance of strong economic growth and to the livelihoods and prosperity of all Australians. We saw, in the wake of the global financial crisis, that we did have a stable banking system, with relatively tight lending standards and rules against predatory lending, and Australia and the Australian economy weren't affected as badly as other Western economies. That has a lot to do with the stability of our banking system and the role of organisations like APRA in maintaining that stability.

Consistent with its mandate to promote financial stability, APRA has taken actions to reinforce sound residential mortgage lending practices by authorised deposit-taking institutions. We've seen that some of these actions, particularly around interest-only loans and the amount of capital that ADI lenders have to carry in their loan books, have produced some changes in lending practices throughout Australia. Under the Banking Act, a body corporate that wishes to carry on a banking business in Australia may only do so if APRA has granted an authority to the body corporate for the purposes of carrying on that business. Once authorised by APRA, the body corporate is an ADI and is subject to APRA's prudential requirements and ongoing supervision.

However, there currently exists a regulatory gap where APRA has no ability to manage the financial stability risks that might arise from lending activities of entities that are non-ADIs. Increasingly, we're seeing many Australians turn to many of these organisations through mortgage brokers to access finance, particularly housing finance, in what's been a tight lending market in recent years. The gap potentially undermines the ability of APRA to promote financial stability, as lending practices that APRA has curtailed or prohibited for ADIs may continue to be pursued by non-ADI lenders. The Banking Act will be amended by the passage of this bill to provide APRA with powers to make rules for non-ADI lenders where there is a material risk to the stability of the Australian financial system. These are intended to be reserve powers. APRA will also be able to roll out and to collect data from these entities for the purposes of monitoring risks in the non-ADI lending sector so as to determine when to use these new powers. These rules close a gap which has occurred and exist when APRA restricts the lending activities of ADIs but is unable to affect the activities and the lending practices of non-ADI institutions.

These new powers are proposed in recognition of the fact that APRA does have responsibilities in relation to the stability of the Australian financial system. It's vital for these institutions that they are well resourced to do everything they can to maintain stability in our system, particularly when the government appears to be doing its best to undermine it.

Labor's shadow Treasurer, Chris Bowen, has been working to highlight areas of our economy where there are unacceptable risks. One such area is in household debt, particularly in household debt related to housing in Australia. We've seen over the recent decade astronomical price increases in the cost of housing, particularly in the Sydney and Melbourne markets. Australians' levels of debt is now 100 per cent higher than the total earnings of all households. Australia has the most generous property tax concessions in the world when it comes particularly to investing in housing. I'm speaking here, of course, of our negative gearing regime, the ability to deduct interest payments on an investment loan for an investment property, and the capital gains tax discount that was introduced by the Howard government—the 50 per cent discount on capital gains tax being paid on the sale of an investment property. When these two reforms were introduced by the Howard government, importantly, in the budgetary context, they weren't funded. In other words, there was no revenue source that offset the reduction in revenue that came about from this additional expenditure associated with these tax concessions. Now that we've got a growing budget deficit—it's almost tripled under this government—we're seeing the folly of those decisions coming home to be borne upon this generation of Australians, because there was no funding source put in place to introduce those very generous tax concessions into the budgetary process. Therefore, it's hardly a surprise that we have one of the highest household leverage rates in the world.

For almost two years, the Labor Party has been calling on the government to bring attention to the risks associated with such high household debt. The Reserve Bank, the International Monetary Fund, the Grattan Institute and the government's Financial Systems Inquiry have argued forcefully that tax concessions, such as negative gearing, distort economic decision-making and encourage leverage in the economy. The overwhelming evidence is that those who benefit from those tax concessions are the wealthiest Australians. I think it was confirmed in the newspapers most recently that the top 10 per cent of income earners in this country benefit from 80 per cent of the capital gains tax discount. So, 80 per cent of the capital gains tax discount benefits go to the top 10 per cent of income earners in Australia.

It's a similar figure when it comes to the benefits of negative gearing. It really is the wealthiest Australians who are benefiting from these tax concessions, and the average homeowner, in particular, the average first home owner, bears the cost of that. They are the ones who are paying for the wealthiest Australians to get a tax discount on the sale of investment properties and a tax deduction for the interest payments on loans associated with those investment properties. Those deductions are even available if they're bought within a self-managed super fund as an investment vehicle. This has led to the situation where first home buyers simply can't get into the market. They turn up to auctions on a Saturday, and they're priced out of the market by people who may be negatively gearing their seventh or eighth investment property. The person negatively gearing that property gets more support from the government than the first home buyer to buy their first home. That's simply unacceptable. It's unfair, and it's generating an imbalance in the operation of the housing market and in our lending practices. It's our view that the government must listen to the experts and deal with the tax concessions, such as negative gearing, that are encouraging higher and higher levels of debt and threatening the stability of our financial system.

Schedule 3 of this bill will allow smaller ADIs to use the word bank in their business name. The changes will align community expectations in respect of the use of the word bank with the fact that ADIs are now prudentially supervised by APRA and deposits are covered by the Financial Claims Scheme guarantee.

Schedule 5 of the bill amends the credit act to introduce a number of reforms to improve consumer outcomes under credit card contracts. These reforms include tightening responsible lending obligations, prohibiting credit card providers from offering unsolicited credit limit increases, simplifying the calculation of interest charges and requiring credit card contracts to allow consumers to reduce credit card limits and terminate credit card contracts, including by online means. We all know how difficult it is to cancel a credit card online. In fact, it's virtually impossible. These reforms will make it easier for consumers to do that. The purpose of these amendments is to reduce the likelihood of consumers being granted excessive credit limits, align the way interest is charged with consumers' reasonable expectations and make it easier for consumers to terminate a credit card or reduce a credit limit.

In response to the 2015 Labor-led Senate inquiry, the Treasurer promised to progress changes to credit card laws in May 2016. Unfortunately, the Treasurer appeared to forget about this promise, and it took Labor politically and publicly pushing for these reforms to force them to reannounce the measures in the 2017 budget. Nevertheless, we welcome these measures, which will improve consumer protections in relation to credit cards. They are long overdue, and it's disappointing that consumers will have to wait until 2019 to get most of these new protections in place. I pity those who have been in the debt spiral and in the situation where they couldn't get out of some of these credit contracts in the meantime. Nonetheless, Labor does support this bill and the changes it makes, particularly to the rules around non-ADI lenders and bringing them under the gambit of APRA's supervisory jurisdiction when it comes to prudential regulations and ensuring stability in our lending practices, the lending market and, indeed, the changes to credit contracts, particularly making it easier for people to get out of credit cards that they are getting into a bad situation with. I commend this bill to the chamber.

Tim Hammond (Perth, Australian Labor Party, Shadow Minister for Consumer Affairs) Share this | Link to this | Hansard source

It is a pleasure to speak on this bill and I will keep my comments relatively brief. I'd like to focus on the part of the bill that seeks to improve consumer protections for banking customers and credit card holders. A government bill, purporting to strengthen consumer protections for financial services for consumers, is, indeed, very welcome, although, I have to confess, a little surprising. I regret if that sounds jaded or cynical but, in my brief time in this place, I haven't seen much evidence of them really putting the rubber to the road and caring terribly much in this area before.

Let's have a look at the time line in relation to that. Firstly, we had a Senate inquiry into credit cards in 2015, which the government finally responded to in May 2016 with a commitment to progress changes to credit card reforms. In May 2016, the government then promised to bring forward draft legislation 'in the near term', although the near term in this case took until August 2017, more than 12 months. Actually, let's go to the nearest number rounding up: it was more than a year and a half after they said they would that we actually saw the ink dry on the draft legislation, and almost three years after the Senate inquiry referral. Let's put this into context, almost three years after the initial referral—we know that many of the consumer protections that are spoken about in this bill won't come into force until 2019.

I was reflecting today that this has an eerily familiar ring to it, in relation to a glacier-like level of progress, insofar as consumer protections actually go. One doesn't need to look any further than the proposed or attempted reforms, in relation to the small amount credit contracts, to see evidence of a snail's pace approach to actually getting something meaningful done to ensure that vulnerable consumers are protected. It's a very similar time line.

The small amount credit reforms or reviews, commonly known as the SACC reforms, are more frequently known in lay terms as payday lenders or rent-to-buy scheme reforms. Whilst building upon the very good work of a former Labor government, there were still, clearly, further improvements that needed to be made as a result of an industry which is fundamentally at risk of not nearly enough regulation in order to protect vulnerable consumers. To their credit, in 2015, the federal government announced a review into the small amount credit contract industry to report back to the government in March 2016, which it did. It was then another six months before—in November 2016—the government came out with its responses in relation to the small amount credit contract review. Its responses were very measured, practical and reasonable. Credit where credit is due, pardon the pun. It just so happened that the government was very content with the recommendations that were contained within the small amount credit contract review.

The reforms went to two things. What we know in relation to payday loans is that, in the financial year 2015-16, over 650,000 people in this country were given payday loans when they could barely afford them. Over two in five of those who were in receipt of payday loans or rent-to-buy schemes were also on the welfare system. There is no doubt that the worst excesses of the onerous interest-free payments and the never-ending story in relation to repayments were hurting those who could ill afford it.

The reforms suggested in the SACC review were to put a cap on the amount that could be taken out of a pay packet or a welfare cheque at any one time and put another cap on the amount they could actually borrow to make sure that these weren't some sort of tragic, never-ending stories resulting in an inevitable debt spiral. They are very sensible, measured and pragmatic approaches to reform to protect vulnerable Australians. You might ask, 'What happened then?' If it sounds too good to be true, it normally is, and this was no exception. Quite frankly, what we saw from November 2016 until almost the present day was a big, fat nothing from this government in relation to progressing these reforms. The reforms had the approval, in principle, of the advocacy groups. The reforms weren't excessive and they represented a reasonable compromise in relation to the various interests of the various stakeholders in this area.

It was left sitting on the desk of the Minister for Revenue and Financial Services for many, many months—around 12 months. There were some very concerning public comments made by her where she said that draft legislation was being prepared, only to be found out by Senator Gallagher, in the other place. According to the department, not a single word had been committed to any draft legislation throughout the course of 2016 and early 2017. What we finally saw in October 2017, under the then Minister for Small Business, Minister McCormack, was some proposed legislation. Again, the proposed legislation was measured. It was put out for consultation with a commitment that it would be introduced before the end of the year. That was not done and we still see, as every day goes by, vulnerable consumers being left in limbo as a result of being trapped in rent-to-buy schemes which have no ending or payday loans which they can ill afford. We see situations where consumers have entered into a contract to buy a fridge for the cost of $350 to keep the household running, only for it to cost them, in a rent-to-buy scheme, over $3,500, repaid over the course of many months, if not years. What we really see are vulnerable consumers being charged up to 800 per cent of the cost of a good in order to pay it off over time.

Just like the SACC reforms—and there'll be more said about those at a different time and in a different place—these consumer protection improvements for credit card holders are also important. Schedule 5 makes changes to credit card laws to improve consumer protections. The changes include tightening responsible lending obligations, prohibiting credit card providers from offering unsolicited credit limit increases, simplifying the calculation of interest charges and requiring credit card contracts to allow consumers to reduce credit limits and terminate credit card contracts, including by online means. I must say that, if anyone has actually attempted to go through the process of cancelling a credit card, I think they would agree—and, boy, do we need instances where we can all agree on something in this place these days—that it is a thousand times harder to cancel a credit card than it is to get one. The hoops that are required to be jumped through at the moment to simply cancel a credit card and not take up another offer really are, in our view, unreasonably burdensome. I'm pleased to say that the changes in this bill do allow consumers a much easier path to make sure that their attempts to break free from the shackle of credit leading into a debt spiral are actually rewarded.

Schedules 1 and 2 of the bill will give APRA the ability to respond to future developments in non-ADI lending, should they pose a risk to financial stability. To protect deposit takers, APRA currently regulates lenders that take in deposits, and this bill gives APRA powers to act in relation to other lenders, should practices or the size on the non-ADI lending sector pose a risk to financial stability in the future. It is important that APRA have appropriate powers to ensure that the stability of the financial system is maintained. We acknowledge the important role that non-bank lenders can also play in terms of competition, including in relation to lending to small businesses, provided those non-bank lenders are subject to appropriate regulatory restraint in order to ensure that those vulnerable businesses and consumers are not otherwise at risk of falling prey to predatory lending practices.

In relation to the credit card reforms and in response to a 2015 Labor-led Senate inquiry, the Treasurer promised in May 2016 to progress changes to credit card laws. Unfortunately, the Treasurer appeared, clearly, to forget about this promise, and it took Labor publicly pushing for these reforms to force him to re-announce the measures in the 2017 budget. We welcome the measures, which will improve consumer protections in relation to credit cards. They are clearly long overdue, and it is disappointing that consumers will have to wait even longer, until 2019, for most of these protections to come into play. What we really see—and what underpins all of the conversations in relation to the banking sector, and what we saw again as recently as today with the release of the draft report of the Productivity Commission in relation to the banking sector—is that it is completely clear that, if we form the view that the best type of disinfectant is a ray of sunshine, what we need more than ever is a robust and effective royal commission in relation to the banking sector.

In order to take the opportunity to focus on the positive parts of 2017, as opposed to those parts where we had our battlelines drawn, let's be frank. A positive part of 2017 was seeing that a royal commission into the banking sector was now up and running. Now, we can have a very robust and heated—and appropriately robust and heated—debate about the terms of reference, in relation to how wide we can cast the net to examine the practices of the banking sector and industry and the practices of the lending sector and industry. It's also an appropriate time to echo the needs of those smaller lenders who provide small amounts of credit to make sure that they are also captured by this commission of inquiry. So it is a good start.

But, quite frankly, two things remain to be seen. Firstly, one can't help but wonder, given the clear, public statements made by this Prime Minister disregarding the need for a royal commission before deciding that political expediency justified actually setting one up, whether it is going to do what it ought to do and what it has the potential to do. That's the first thing. Secondly, we need to make sure it happens as quickly as possible and that all consumers get a chance to put their case to the royal commission. The rubber looks likely to hit the road in 2018. We should be optimistic that progress will be made in relation to protecting consumers in the finance and credit sectors. There is no doubt that, while this is taking much longer than it should, it is nevertheless a good start.

Question agreed to.

Bill read a second time.

Ordered that this bill be reported to the House without amendment.

Sitting suspended from 11:10 to 11:33