Michael Ronaldson (Victoria, Liberal Party, Shadow Minister for Veterans' Affairs) Share this | Link to this | Hansard source

It gives me great pleasure today to talk about the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011.

An honourable senator: It is one of your pet subjects!

That is right. I have been keeping a very close eye on this matter and I am very pleased to be making some presentations today. This bill outlines changes to the National Consumer Credit Protection Act 2009, which introduces, first, a requirement for lenders to provide a key fact sheet for standard home loans. Second, it introduces reforms to lending terms for credit cards, which was the government's election policy announcement, by, firstly, prescribing rules for approval of the use of credit cards above the credit limit; secondly, specifying an allocation hierarchy for payments made under credit card contracts; thirdly, restricting credit providers from making unsolicited invitations to borrowers to increase the credit limit of their credit cards; and, finally, introducing a requirement for lenders to provide a key fact sheet for credit card contracts. The coalition will not oppose this bill; however, we do have concerns over some of the elements contained within it.

By way of background, I think it is important to advise the chamber that, as part of the 2010 election campaign, the Labor government introduced a Fairer, Simpler Banking policy which, among other things, aimed to more closely regulate the issuance, limits, fees and charges, and product disclosure of credit cards in order to enhance the protection of consumers. This was then followed by Treasurer Swan's announcement in December of last year of the government's Competitive and Sustainable Banking system, which included a key fact sheet for new home loan customers. This was in response to the coalition's nine-point banking plan. The National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011 deals with both of these policy announcements.

There are a number of issues associated with this matter, Mr Deputy President—and I congratulate you on your appointment today to that very high position. This bill is an unsatisfactory response to perceived issues within the banking industry. While some elements within the bill such as changes to the hierarchy of payments under credit cards contracts are worthy of consideration, the other sections relating to credit card reform seem to be poorly drafted. Industry concerns seem not to have been fully addressed. At the eleventh hour, the government decided to listen to industry and put forward some substantial amendments to this bill in the House of Representatives. These amend­ments are embarrassing for the government as they had previously refused to listen to industry concerns—a matter I would have thought of extraordinary embarrassment to this government given their behaviour in relation to this matter.

The bill sets out the following changes. First is a key fact sheet for standard home loans. This measure was initially set to apply from 1 September 2011. Following con­sultation with industry, the deadline has now been extended by the government—I have to say it was at the eleventh hour through amendments—to 1 January 2012. The contents of the key fact sheet will be prescribed by regulations which are yet to be released by the minister. We expect them soon—unless they have already been prescribed, which I do not think they have; I am sure the parliamentary secretary would have told me so. It is another delay, and these regulations are yet to be prescribed. The government has also chosen to remove in their amendments the strict liability which applied to this section—a concern which was consistently raised by industry and institutions.

I will now turn to reforms to lending in terms of credit cards. Firstly, in relation to prescribing rules for the use of credit cards above the credit limit, the government has chosen to remove the sections relating to the default buffer limit at 10 per cent of the credit limit, as well as the allowance for a supplementary buffer. These reforms were to prevent consumers from exceeding an agreed-upon limit. However, industry bodies and institutions expressed concern that the bill could send a message to consumers that they may in effect have a 10 per cent higher credit card limit if they choose. The government has now removed this section through its eleventh-hour amendments and replaced it with a requirement for consumers to be notified if a credit card is used in excess of its credit limit and an express requirement for no fees to be imposed and no higher rate of interest to be charged if a customer exceeds their credit limit, unless they have provided explicit consent for a fee to be charged.

The second reform specifies an allocation hierarchy for payments made under a credit card contract. This section of the bill requires credit providers to apply relevant repayments first to the part of the consumer's balance that attracts the highest credit rate, and this seems to be a reasonable reform. The third restricts credit providers from making unsolicited invitations to borrowers to increase the credit limit of their credit card. Some institutions have stated that a potential unintended consequence would be to force credit providers to push borrowers towards higher initial credit limits than otherwise would have been offered. The fourth intro­duces a requirement for lenders to provide a key fact sheet for credit card contracts. Concerns about this section of the bill are similar to those for the key fact sheet for standard home loans.

I would now like to turn to Greens amendments rejected in the House of Representatives—and that, of course, is the Greens political party, who are in a political alliance with the Australian Labor Party that we are all acutely aware of. We have seen the outcomes of that in the last 36 hours and undoubtedly we will see a lot more of that relationship between the Australian Greens and the Australian Labor Party as they head, in coalition, to thoroughly and completely destroy this country. Mr Adam Bandt MP, the member for Melbourne, moved amend­ments seeking to have divisions 5 and 6 apply to transactions and payments made under a credit card contract entered into before or on the date of the legislation coming into effect. Division 5 relates to the use of a credit card in excess of the credit limit and division 6 relates to the order of application of payments made under credit card contracts, which is a reasonable reform. The coalition opposed this amendment in the House of Representatives. The amendment was retrospective on existing contracts entered into prior to the legislation coming into effect.

In summary, the coalition will not oppose this bill. The amendments moved in the House of Representatives are embarrassing for the government and highlight the deficiencies in their approach to this policy matter. It is not just with this that we have seen this sort of lack of detail and lack of understanding about what is required to properly govern this country. We have seen time and time again this government dragged kicking and screaming into having some sensible policy responses to key issues. Why is it that they are so inept that they require others to do their work for them? I look at the work that Senator Cormann has done in relation to this. I look at the work the shadow Treasurer has done in relation to this. Again the coalition is required to fix the govern­ment's messes—time after time after time. Industry and institutions have warned on a number of occasions throughout the legislative process that some of the elements contained in this legislation would have unintended consequences—a fact that the government have chosen to take on board at the eleventh hour. The unintended conse­quences were not news to them; they had been told about them and they chose to do nothing about it until the eleventh hour, when again the coalition addressed their deficiencies and told them how to best rectify the matter.

The coalition believes that the govern­ment's approach of imposing additional regulation and interfering in commercial decisions of banks is not the preferred approach when addressing market deficiencies. The coalition stands by its call for a root-and-branch review into Australia's financial system as part of the nine-point banking plan announced in October last year. Of course, that nine-point banking plan was the coalition again proactively putting forward some policy proposals to address issues. Again there was a requirement for the coalition to do the policy work for an inept government. Again the coalition was required to go out and say to industry and others: 'We've got some solutions. We will work with you to make better legislation'—and that has been the outcome today. So I congratulate Senator Cormann and the shadow Treasurer for again being in a position to get bad laws made better. We will not be opposing this bill, but I hope the government finally starts to learn some lessons about its completely inept handling of legislation and of the economy.

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

I indicate my support for the second reading of the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011, but I foreshadow that I will have a number of amendments that I will ask the Senate to consider seriously. This bill follows the Treasurer's announce­ment in December last year that the govern­ment wanted to 'promote a competitive and sustainable banking system to give every Australian a fair go'. Under this bill, yes, some good measures are being introduced. Consumers will be provided with fact sheets prior to entering a home loan or a credit card contract. Lenders will not be able to offer unsolicited invitations to borrowers to increase credit limits they may not be able to afford. This is something that as a member of the South Australian parliament I cam­paigned for and it is an important issue in terms of basic consumer rights in the face of that sort of aggressive behaviour by some lending institutions. Also, over-limit fees will be prohibited, and credit card payments will pay off higher interest debts first, which I think is a good and innovative solution. These are good measures.

But if the government is serious about ensuring a competitive and sustainable banking system then it needs to seriously reconsider its blanket ban on exit fees. I acknowledge that this chamber recently debated a motion—moved by my colleague Senator Cormann, for the opposition, and by me—to disallow the government's regu­lations which came into force on Friday, 1 July. However, I wish to highlight again my concerns about the impact this blanket ban will have on small lenders and the con­sequence for competition in the banking sector.

At the outset, I make it clear that I do not support the excessive exit fees that have been imposed by lenders to date. While the government might have the right intention, a blanket ban on exit fees is not the solution. Banning exit fees across the board was the government's knee-jerk reaction late last year to public demand for greater competition in the banking sector. The only way to ensure competition in the banking sector, however, is to support the smaller players. All the govern­ment's ban on exit fees will do is reduce competition in the longer term because smaller players will be severely impacted as a result and there will simply be cost-shifting in where the fees are being charged.

The simple fact is that small lenders need to be able to cover their costs of lending, which the big banks are able to offset in other areas of their business. The big banks also have much greater flexibility in their ability to raise finance. Smaller lenders are forced to pay third parties to complete the administrative necessities of a home loan such as valuations, legal fees et cetera. These costs usually total between $1,000 and $2,000, so fees are applied to cover these costs should borrowers leave their mortgages in the first few years. Unlike the big four banks, small lenders are not able to offset these costs in other ways. By banning exit fees, small lenders will have to either bear the costs themselves or lift their rates, making them uncompetitive against the big banks that can absorb these costs elsewhere.

While the government's ban may have been intended to improve competition, it will actually have the consequence of reducing competition by severely impacting on the non-bank lending sector and, as a consequence, interest margins on mortgages will rise over time. To address this, I foreshadow I will be moving amendments in the committee stage of this bill so that the ban on exit fees will only apply to lenders and their subsidiaries who hold a particular market share or greater to ensure that smaller players are able to, within reason, apply fees to their own customers.

There will be an overarching consumer protection provision, which this bill has not addressed, because the amendments I will be moving will have a reasonableness test. There must be some materiality for all fees and charges relating to the provision of credit. For instance, that reasonableness test would also apply to credit card fees.

I welcome the measures in this bill, but I think the government needs to seriously think about its blanket ban on exit fees if it truly wants to promote a competitive and sustainable banking system to give every Australian a fair go. My concern is that the government's changes will have the effect of further reducing the competitive pressures within the banking industry. It will further, since the GFC, consolidate the power in the big four banks.

There is something fundamentally missing here and that is the issue of unfair contract terms. At the moment, ASIC needs to give some guidance in unfair fees. I think the current test is simply too vague. The amendments I will be moving will ensure there must be a link, a reasonableness test, a materiality test, between what is being charged by any lending institution in the provision of credit with respect to any penalty fees and the like. I think it is important that there is substantial consumer protection reform. Simply giving consumers information is not enough. You need to give consumers protection so that what they are being charged is reasonable and so that the fees being charged are materially linked to the cost of providing that service. This bill does not do this and that is why I will be moving amendments during the committee stage to improve this bill.

Nick Sherry (Tasmania, Australian Labor Party, Minister Assisting the Minister for Tourism) Share this | Link to this | Hansard source

Firstly, congratulations, Mr Deputy President, on your election. The National Consumer Credit Protection Amend­ment (Home Loans and Credit Cards) Bill 2011 delivers on the government's election commitment to crack down on the unfair treatment of Australians with credit cards and to help them obtain a better deal with their credit card and home loans. I thank senators for their contributions and commend the bill to the Senate.

Question agreed to.

Bill read a second time.