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

I seek leave to split amendment (2).

Stephen Parry (Tasmania, Liberal Party) Share this | Link to this | Hansard source

For clarity, it is your intention to move the first part of amendment (2) on sheet 7110, which relates to the Banking Act, and then move the second part of amendment (2), which relates to the National Consumer Credit Protection Act 2009, and deal with them as separate amendments.

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

That is the best way of dealing with it, I believe. I am sorry it was not split up previously, but they are distinct concepts and so it is appropriate to split them.

Stephen Parry (Tasmania, Liberal Party) Share this | Link to this | Hansard source

Is leave granted for Senator Xenophon to deal with this as two separate amendments?

Leave granted.

We will deal with the first one first. We will call it No. 2 on sheet 7110.

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

For the sake of completeness, I should move amendment (1), which is a consequential amendment that relates to the commencement of part 3 of the act and states that it commences 'The day after this Act receives Royal Assent'. I should move that along with—

Stephen Parry (Tasmania, Liberal Party) Share this | Link to this | Hansard source

Senator Xenophon, if I could just interject there, we will deal with that afterwards as that is consequential. We will deal with the two amendments that we have just highlighted, if you are comfortable to deal with it that way.

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

I do not think that it is possible for you to interject from your position.

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

It's disorderly!

Stephen Parry (Tasmania, Liberal Party) Share this | Link to this | Hansard source

Can I offer a direction in that regard.

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

I was not suggesting that what you were doing was disorderly, Mr Chairman. I am suggesting that you are giving me a direction rather than an interjection.

Stephen Parry (Tasmania, Liberal Party) Share this | Link to this | Hansard source

And, if you accept that direction, we will go ahead and deal with amendment (2).

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

I wholeheartedly accept that direction and I move amendment (2) on sheet 7110:

(2)   Schedule 1, page 25 (after line 20), at the end of the Schedule, add:

Part 3—Amendments relating to termination fees and credit fees and charges

Banking Act 1959

1 At the end subsection 9(4)

Add "or the requirements of section 9AF".

2 After section 9

Insert:

9AF Variation of conditions of certain authorities

(1)   APRA must, within 30 days of the commencement of this section, vary the con­ditions of relevant existing section 9 authorities to give effect to this section and any new section 9 authority granted after that commencement to which this section applies must include conditions that give effect to this section.

(2)   The section 9 authority for a bank which has a market share of more than 10% must prohibit the bank from imposing an early termination fee in respect of any loan agreement or mortgage contract entered into by the bank after the commencement of this section.

(3)   If a bank which has a market share of more than 10% has an interest of 51% or more in a subsidiary which is an ADI, the section 9 authority for that ADI must prohibit the ADI from imposing an early termination fee in respect of any loan agreement or mortgage contract entered into by the ADI after the commencement of this section.

(4)   In this section:

bank means an Australian ADI that is permitted under section 66 of the Banking Act 1959 to assume or use:

  (a)   the word bank, banker or banking; or

  (b)   any other word (whether or not in English) that is of like import to a word referred to in paragraph (a).

early termination fee means any additional charge imposed on a borrower or mortgagor in any situation in which the borrower or mortgagor chooses to pay out the loan agreement or mortgage contract, as the case may be, ahead of the time specified in the relevant loan or mortgage contract.

market share means market share determined by APRA on the basis of proportion of total deposits.

National Consumer Credit Protection Act 2009

3 Before section 31 of the National Credit Code (in Division 4 of Part 2)

Insert:

30C Credit fees or charges relating to credit contracts

(1)   A credit fee or charge payable by a debtor to a credit provider must be reasonable.

(2)   ASIC may, if satisfied on the application of a debtor or guarantor that a credit fee or charge is not reasonable, apply to the court for an order annulling or reducing the credit fee or charge and for any other ancillary or consequential orders.

(3)   In determining whether a credit fee or charge is not reasonable, ASIC must have regard to whether the amount of the credit fee or charge materially exceeds:

  (a)   the credit provider's reasonable costs of undertaking the activity or service to which the credit fee or charge relates; or

  (b)    the credit provider's average reasonable costs of undertaking the activity or service to which the credit fee or charge relates in respect of that class of contract.

(4)   In considering an application by ASIC under subsection (2), the court must have regard to whether the amount of the credit fee or charge the subject of the application materially exceeds:

  (a)   the credit provider's reasonable costs of undertaking the activity or service to which the credit fee or charge relates; or

  (b)    the credit provider's average reasonable costs of undertaking the activity or service to which the credit fee or charge relates in respect of that class of contract.

[termination fees and credit fees and charges]

This first amendment prohibits banks of greater than a particular market share percentage from imposing an early termination fee in respect of any loan agreement or mortgage contract. It also includes a reasonableness test—or that is what it relates to.

According to APRA, based on total deposits the big four banks hold 75 per cent of the market. Westpac has 20.5 per cent market share, the NAB 16 per cent, ANZ 15.9 per cent, and the Commonwealth Bank 22.5 per cent. There is no question that there is a real concern about the lack of com­petition in Australia's banking sector because of the dominance of the big four. It is vital therefore that small lenders are given as much support and assistance as possible to ensure that they are able to continue to offer consumers alternative banking choices, and I believe that an unintended consequence of the government's blanket ban on exit fees is that small lenders will be pushed out of the market.

Unlike the big four, who can offset costs and who have much greater capacity for borrowings, the small lenders need to be able to charge basic fees to keep them in the market. The fact is that small lenders pay third parties to complete the administrative necessities of a home loan such as valuations and legal fees, and small lenders cannot offset losses like the major banks and there may well just be a case of cost-shifting.

But what concerns me is that since the GFC, with the guarantee that the government has put in place—which of course was welcome and was the right thing to do—the nuances of that in terms of the imple­mentation of that were that it simply strengthened the power of the big four. They increased their market share in business banking and the home loan sector and I fear that, unless we provide some support for those small lenders, consumers will ultimately be worse off.

So effectively that is what this amendment relates to. This amendment applies the ban on exit fees only to big banks with more than 10 per cent of market share and their subsidiaries, which are defined as being owned 51 per cent or more. That is the gist of this amendment and I urge my colleagues to support that. I am not sure what the coalition's view would be, but it would be not inconsistent with the measure that I co-sponsored with my colleague Senator Cormann on behalf of the opposition that sought a blanket ban on exit fees. It is not in the same form—I acknowledge that—but it is true to the general intent there about the impact that it would have on small lenders.

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

I indicate that my remarks apply to the other amendments, Senator Xenophon, so I do not want to unduly take the time of the chamber and be repetitive. The government will not be supporting the amend­ments. We do understand your inten­tion, Senator, in moving the amendment and your commitment to a better deal for consumers. You have been very consistent in that approach over many years. However, the government cannot support the amendments, as they duplicate laws we have already created and would put their enforcement at risk. The government has already banned exit fees for all lenders, not just the big banks. Making any further regulation in this space is therefore unnecessary. It would create significant difficulties for our financial regulators in enforcing an exit fees ban on new home loans.

The government has already given ASIC the power to prosecute any fee in any credit contract that is unfair or unconscionable to consumers. These powers are contained in section 128F and 12CB of the ASIC Act. Duplicating these laws with inconsistent tests and definitions would put at risk ASIC's ability to prosecute under our existing laws, and that in turn would risk letting the banks off the hook and hurting consumers. Therefore we cannot support Senator Xenophon's motions to amend.

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

Just quickly and on behalf of my colleague Senator Cormann—and obviously I am acutely aware of the motion jointly sponsored by Senator Xenophon and my colleague, as Senator Xenophon quite rightly said—this is not in the same form and we will not be supporting the amendment, on the basis that it introduces a differential regulation based on market size.

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

It's a cousin to it.

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

I fear a distant one, Senator. We are opposed to differential regulation as it creates market distortions and market-distorting regulations will eventually reduce the efficiency of markets and cost consumers more. Differences in fee structures based on market size will make comparison of products harder and will create confusion for consumers. The coalition favours a level playing field where consumers are able to select between products with certainty and clarity.

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

I am disappointed but not surprised. I can indicate that I have introduced a bill which I hope will be dealt with by committee, particularly in relation to the next amendment, and I hope that there will be a modification of the position of my collea­gues on both sides at some stage in the future. I indicate that Senator Ronaldson of course is quite correct: it is not identical but it would have, I believe, a similar effect in relation to the market distortion that has occurred as a result of the blanket ban on exit fees. If the ban were applied only to the big four, that is something that they could easily absorb, but the disproportionate impact on the smaller players in the market is one that is of concern. We have seen the contractions since the GFC, in part because of the way that the guarantee was structured. That was something that was raised in the banking inquiry of the Senate Economics References Committee, very ably chaired by Senator Bushby, and I supported the coalition in their concerns about that blanket ban on exit fees.

This is a slight modification, but I think it will have the same effect in terms of those small operators in the marketplace. I under­stand that this amendment will go down. I will not be seeking to divide on it. I think we need to carefully monitor the effect of the blanket ban on exit fees, including whether consumers get slugged with other fees—so in the end consumers are not any better off; they are simply affected some other way. That is something that I believe my next amendment will substantially remedy.

Question negatived.

Stephen Parry (Tasmania, Liberal Party) Share this | Link to this | Hansard source

We will now move to the part of amendment (2) on sheet 7110 that relates to the National Consumer Credit Protection Act 2009.

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

I move:

(2)   Schedule 1, page 25 (after line 20), at the end of the Schedule, add:

National Consumer Credit Protection Act 2009

3 Before section 31 of the National Credit Code (in Division 4 of Part 2)

Insert:

30C Credit fees or charges relating to credit contracts

(1)   A credit fee or charge payable by a debtor to a credit provider must be reasonable.

(2)   ASIC may, if satisfied on the application of a debtor or guarantor that a credit fee or charge is not reasonable, apply to the court for an order annulling or reducing the credit fee or charge and for any other ancillary or consequential orders.

(3)   In determining whether a credit fee or charge is not reasonable, ASIC must have regard to whether the amount of the credit fee or charge materially exceeds:

  (a)   the credit provider's reasonable costs of undertaking the activity or service to which the credit fee or charge relates; or

  (b)    the credit provider's average reasonable costs of undertaking the activity or service to which the credit fee or charge relates in respect of that class of contract.

(4)   In considering an application by ASIC under subsection (2), the court must have regard to whether the amount of the credit fee or charge the subject of the application materially exceeds:

  (a)   the credit provider's reasonable costs of undertaking the activity or service to which the credit fee or charge relates; or

  (b)    the credit provider's average reasonable costs of undertaking the activity or service to which the credit fee or charge relates in respect of that class of contract.

This amendment is also the subject of a private senator's bill that I introduced in the last sitting week. I hope it will be subject to an inquiry. I urge my colleagues to support this because it is quite straightforward in what it is intending to do. I am grateful for the advice I have received on this from Associate Professor Zumbo, from the University of New South Wales School of Business. He has been a long-time champion for small businesses and for the rights of consumers.

This provision seeks to modify the current Consumer Protection Code and is entirely consistent with what this legislation is trying to achieve—that is, to empower consumers, to give them more information and to level the playing field for consumers. The current rules state that ASIC has the power to strike down any unconscionable terms in relation to early termination fees for residential loans, unconscionable fees and unfair contract terms. This provision seeks to introduce a reasonableness test into the National Consumer Credit Protection Act 2009 for any credit fee charge payable by a debtor to a credit provider.

I know there have been concerns about the level of bank fees, not just exit fees, that are charged. This amendment states that any fee or charge that relates to the provision of credit, whether it is a personal loan, a mortgage or a credit card, must be reason­able as compared to the cost of undertaking the activity by the credit provider. That means that smaller lenders may have a different fee structure. They might be charging more for termination fees or penalty fees than a bigger institution. Having a reasonableness test—so there is some material link between what is being charged and what it is actually costing that institu­tion—is entirely consistent with the National Consumer Credit Protection Act in its current form. It is about giving some certainty. It is about having a specific test that targets the whole issue of unreasonable fees.

The whole issue is one of materiality. ASIC's Regulatory guide 220issued in November 2010 is welcomed but it does not give the clarity that I believe is required. You need to have a link between the materiality of charges that a lending institution is hitting a consumer with and the issue of reasonableness. To say that you must apply the test to consider the issue of materiality I think would make a big difference. This amendment states:

In determining whether a credit fee or charge is not reasonable, ASIC must have regard to whether the amount of the credit fee or charge materially exceeds:

(a)   the credit provider's reasonable costs of undertaking the activity or service to which the credit fee or charge relates; or

(b)    the credit provider's average reasonable costs of undertaking the activity or service to which the credit fee or charge relates in respect of that class of contract.

Again, that is the question of reasonableness and materiality.

I understand that the government and the opposition do not support this, but I would like to hear them say whether there is enough specificity and clarity under the current ASIC guidelines. This is a reasonable amend­ment that will give clarity and cer­tainty to lending institutions and consumers and will prevent the sort of gouging we see with various credit fees.

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

We will be opposing this amendment. The National Consumer Credit Protection Act 2009, which came into effect in July 2010, already deals with uncon­scionable or unfair fees and charges. Borrowers can already complain to ASIC or to an external dispute resolution scheme. The borrower or ASIC can seek a review of fees by a court. This proposal would require ASIC to determine what is a reasonable fee, which is beyond the current scope and role of the regulator. As each credit provider's average reasonable costs would be different, this would require extensive ASIC resources and high costs in each case. These higher costs would need to be passed on to consumers or funded by the taxpayer.

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

I referred earlier in my contribution that the government would not be supporting this regulation. The government has given ASIC the power to prosecute any fee in any credit contract that is unfair or unconscionable to consumers. That is contained in sections 12BF and 12CB of the ASIC Act. As I mentioned earlier, duplication and inconsistent test definitions are inappropriate. We will not be supporting the amendment.

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

Again, I am disappointed but not surprised. I am just trying to understand the coalition's point of view. Senator Ronaldson, I apologise if I misheard you but how would it cost taxpayers more if there were greater clarity in the test? How would it be a burden to simply have guidelines that say there must be some materiality between what has been charged and the cost, and to measure that as a yardstick of reasonableness in terms of interpreting the ASIC guidelines?

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

I am sure that Senator Xenophon and my colleague Senator Cormann can have a longer discussion about this at some time in the future, but the point I was making is that the increased costs that might be imposed on ASIC would require extra resourcing from somewhere.

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

For a man of Senator Ronaldson's calibre, I am surprised that this is the best he can come up with. I have a lot of respect for his powers of argument and putting up a cogent case—but honestly! He is saying do not add an extra layer of protection for consumers because ASIC will not have the resources to do so. In fact, this would make it easier. Let us put this argument to rest. Having a clearer test would mean less uncertainty. If you have clearer guidelines and a clearer test it would arguably lead to a lessening of the resources needed by ASIC to deal with what is currently very vague. I am not sure if that will convince Senator Ronaldson to change his view in relation to this. He seems unmoved, so I will not pursue it.

The minister says there is a regulatory guide. Since the guide came out in 2006 how many actions have there been, how many warnings have been sent out and how many prosecutions have there been in relation to breaches of unfair contract terms that we are supposed to interpret with this regulatory guide?

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

Firstly, I want to congratulate Senator Ronaldson for the fine speech he has just made. Senator Xenophon, I think you are a little harsh on him.

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

Yes, I agree with you.

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

Senator Xenophon, I will have to take your question on notice. Unfortunately we do not have anyone from ASIC here. But there are plenty of opportunities to find out. ASIC attend estimates on three occasions during the year, and I am the representative minister at those hearings. They also attend two or three meetings of the Joint Committee on Corporations and Financial Services. So that is at least five times a year. I will take your question on notice and endeavour to get that information for you as soon as possible. I will personally follow it up and see what we can find out.

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

I did not mean to be harsh in relation to Senator Ronaldson. I actually have a great personal regard for him.

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

You said that but then you whacked him!

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

I just thought it was a weak argument! And Senator Ronaldson said that I have a weak argument. He is not shy in coming forward, and I respect that. But let us wait and see, I guess. I still believe this amendment has merit. It is about tying in a test to make it clearer as to what is reasonable or not. It does not seem unreasonable to have a material link between the actual costs of providing a service and what a consumer is charged. Some banks and credit institutions charge a fee that is completely disproportionate to the cost of providing that service, and that is what this amendment is intended to provide clarity on. The minister has indicated that he will provide an answer in due course in relation to the matters raised. I think ASIC has one hand tied behind its back by virtue of the vagueness involved in these current regulations. So I will maintain this amendment and, if there is another voice with me, I will be seeking a division.

Stephen Parry (Tasmania, Liberal Party) Share this | Link to this | Hansard source

Thank you, Senator Xenophon. I think Senator Ronaldson will survive the evening with that bruising! I call Senator Madigan.

John Madigan (Victoria, Democratic Labor Party) Share this | Link to this | Hansard source

I support Senator Xenophon's amendments to the bill as tabled.

Question put:

That the amendment (Senator Xenophon's) be agreed to.

The committee divided. [17:47]

(The Chairman—Senator Parry)

Question negatived.

Stephen Parry (Tasmania, Liberal Party) Share this | Link to this | Hansard source

That now makes amendment (1) on sheet 7110 redundant.

Bill agreed to.

Bill reported without amendments; report adopted.