Matthew Canavan (Queensland, Liberal National Party) Share this | Link to this | Hansard source

I rise to continue remarks that were interrupted by question time earlier today. To recap in simple terms, a few years ago the then Labor government made a decision to take money away from people, and the bill before the chamber today, the Banking Laws Amendment (Unclaimed Money) Bill 2015, returns that money to people and returns us to the default position where people can expect that they will not have money taken from their bank account before it is inactive for a period of seven years. As I indicated in my earlier remarks, that had been the record and the policy of the Commonwealth government from 1911 through to 2012. Over that period, it was always the case that you had seven years before unclaimed moneys would be claimed by the government. A couple of years ago, the then Labor government, in a desperate and ultimately futile attempt to reach a budget target, decided to reach into the piggy banks of every Australian household and take that money off them earlier, changing that policy of 101 years. This bill helps change that back.

It was a policy for 101 years, almost the entire period of the Commonwealth government, a time in which we had the two world wars, the Great Depression, the Cold War and two Olympic Games in Australia. It was a consistent policy over that entire time frame. But then, suddenly, the world's greatest Treasurer, and the world's greatest finance minister, said a few years ago: 'It may have been be policy for more than 100 years, but I think it is wrong and we should take that money back from people after three years not seven years.' Unfortunately, the world's greatest Treasurer got that wrong two years ago and the government has now got it right in returning our position back to the default position, which is that people can expect to have their money in the bank for at least seven years before it is deemed to be unclaimed money and taken by the government.

The scope of the change was quite significant. It was not simply an administrative change of going from seven to three years; there was a substantial amount of money put at risk with this change. In 2013, the year after that the decision was made, $550 million in unclaimed moneys was taken by the federal government. That was the year after Mr Swan, as Treasurer, changed the law that had existed for 101 years. In 2012, the year before that change, there was only $70 million in unclaimed moneys. So it went from $70 million a year to $550 million a year. You can see why the Labor Party saw this as a juicy target. They were struggling to keep any kind of control over the budget and to keep consistency in the promises they were making to people to balance the budget at the time. So they saw half a billion dollars sitting in bank accounts, which people expected was their money, and they took that money. That is literally what they did. They took $500 million that was additional to what would normally be claimed—or, to be precise, $480 million—and transferred it to the government to help build their budget bottom line. What kind of government does that overnight? Even if you thought seven years was too long and it should be three, four, or five, you would think you would take a little longer, not just make that change overnight, within a year, and suddenly go from taking a $70 million a year in unclaimed moneys to $550 million. But it was certainly not out of step with the aptitude and approach of the Rudd-Gillard government. Unfortunately, this government has had to spend a lot of time fixing up the mistakes and missteps of the former government—and this is another one that is being fixed.

This bill will reverse the policy of taking people's money after three years and go back to seven years. As I said before, the Labor Party were caught red handed in this wild spending spree smashing the piggy banks of people all around the country. They were caught red handed and they have now fessed up to it. My understanding is that they are going to support this bill. That is great, and I compliment them for that. But the best thing to do when you realise have done something wrong—and I have certainly done many wrong things in my life—is to admit it and make amends for it. And it is good to see that the Labor Party are finally making amends for this.

But I suppose there is some silver lining as well to what happened a few years ago. Perhaps it is a case of 'no bad deed going unrewarded', because this bill now makes improvements, I believe, in regard to the policies on unclaimed moneys. As I said, it has been consistent for a long time to claim those moneys after a seven-year period. But this bill would extend some exemptions to certain accounts such that the moneys in those accounts will not be claimed by the government even after seven years. I think that is a positive development. For example, funds in children's accounts will be exempt from this legislation. Of course, many Australians seek to put savings into a child's account for their future and put it in their trust. Sometimes, activities in those counts may be understandably low, because they might not receive any additional funds or, indeed, have any activity for a period of seven years or more. Notwithstanding that, the parents or guardians would still expect that money to be available for the child once they turn 18 or become responsible for their own financial affairs. In recognition of that fact, the government has made a decision not to punish parents or other Australians who have not realised that there is that seven-year period. So children's accounts will be exempted in this bill, and I think that is a very positive change.

Similarly, bank accounts denominated in foreign currency will also be exempted. This is to reflect the fact that foreign currency accounts are usually used by sophisticated consumers to settle complex international business transactions. There are only a small number of these accounts in the country. In the government's view, it would be an unnecessary and unreasonable impost of red tape to expose those accounts to this particular legislative framework, so they will be exempted as well.

There are a number of other changes that will also improve the operation of this legislation. The government has made a decision to no longer publish ASIC's Unclaimed Money gazettes. While there have been some concerns that this may make it harder for people to reclaim their unclaimed moneys, ASIC already provides MoneySmart, an online resource for reuniting account holders with their accounts. Anyone listening who feels they may have unclaimed money can go to www.moneysmart.gov.au to try and find it. This particular change, in conjunction with stricter controls on access to information about unclaimed moneys, will help to protect Australians with unclaimed accounts from exploitation. In my view, that is another positive change in this piece of legislation. This bill implements a number of privacy protections and secrecy provisions to limit the access to this information to those people who truly need it.

At the moment, a freedom of information request to ASIC can result in the personal information of Australians with unclaimed accounts being published. That information can include the account holder's name, their last known address and the amount of money unclaimed. The Australian Information Commissioner has raised concerns that this level of information could enable identity theft. Apparently, there are reports that some unscrupulous businesses are using such information to charge fees as high as 25 per cent to reunite people with their own money. The government believes that behaviour should not be accepted, or at least should not be encouraged and supported, through the provision of information to people who do not own the account. This bill will ensure that future FOI requests in regards to unclaimed moneys will only reveal details to the individual whose account it is. To receive these details through an FOI request in the future, the actual individual who owns the account would have had to have made that request. That change will help ensure that people's private details do, indeed, remain private.

The government will also ensure that it is easier to keep accounts active by making it easier for people to demonstrate or qualify for an active account so that their account is not unclaimed. All they will need to do in the future is check their account online or over the phone for an account balance. That simple check will trigger the account to remain active and it would not be subject to unclaimed moneys legislation.

Taken in combination, these changes will I believe make the framework that has existed for over a century stronger. They will make it more responsive to the particular uses that Australian consumers make of their bank accounts, particularly by exempting children's savings accounts. While it is unfortunate that the former Labor government decided to change the more-than-a-century-old framework in this field, I believe that, when this bill passes, we will have a stronger unclaimed moneys framework, and one that is more responsive to consumers' needs.

It is also the case that the changes will help reduce regulatory burden on the sector. Having to claim money within a three-year time limit rather than a seven-year time limit may raise more money for the government, but it does impose a burden on the financial sector. Going back to the previous regime will help remove that burden. It is estimated that that will save the wider economy $36 million a year. Of course, that includes not just the burden placed on banks and life insurers who have to transfer this money to the government but also the burden placed on Australians themselves who will less frequently have to check and try to track down the moneys that may be unclaimed.

That saving of red tape and the reduction of the regulatory burden is a core commitment and a core value of this government. We should be a government that seeks to walk softly for business. We have a need for regulation in many areas, and this, indeed, is an example of where there is a need for some form of regulation. But we should seek to minimise its impost on businesses, particularly small businesses, and, of course, we should seek to ensure that regulation does not unduly restrict the development of our economy, the creation of jobs and the creation of a more wealthy and prosperous community. This is just one small element of the government's regulatory reduction agenda. We have made it easier for large projects to be approved in this country. Indeed, there has been more than $700 million worth of projects approved since this government came to power. We have reduced regulation of the farm sector, particularly around the approval of chemicals and pesticides, which was becoming increasingly burdensome for that sector. Added up, these changes make a big difference.

The government is also now progressing further reforms to make it easier to get projects like the Adani coalmine in Central Queensland, near where I live, across the line. This project has the potential to deliver 10,000 jobs to Central Queensland, which is half the size of the NBN, in terms of value, just in Central Queensland. It is something that we need to do. We should have done it years ago. It has taken us five years to say yes or no. We need to reduce that regulatory burden to make it easier for people to invest in our country.

James McGrath (Queensland, Liberal National Party) Share this | Link to this | Hansard source

It gives me great pleasure to rise this evening to speak on the Banking Laws Amendment (Unclaimed Money) Bill 2015. This is a very important bill for the savers and the taxpayers of Australia. Under the previous Labor government, over $550 million was raided from 156,000 accounts after Bill Shorten, the then responsible minister, reduced this inactive period for bank accounts from seven years to three years. Effectively, it was the greatest period of bank robbery since Ned Kelly was fandangling around the Victorian bush. This is a good bill because it is on the side of Australian taxpayers and Australian savers. No government should be taking the savings of Australians after such a small period as three years. Returning it to seven years is, I think, an appropriate balance for the taxpayers and savers of Australia.

In May 2014, the government released a discussion paper on potential changes to the unclaimed moneys regime. It requested comments in relation to three particular options. The first option was retaining the status quo of three years that had been brought in by Labor—and that huge cash grab of half a billion dollars in one year alone that I mentioned before. The second option was increasing the period of inactivity to five years. The third option was to return it to a period of seven years. This particular discussion paper also included comments and discussion on related issues, including whether foreign currency accounts should be captured and balancing the privacy requirements with the requirement to publish information on unclaimed moneys and other administrative matters.

In November 2014 the financial system inquiry discussed unclaimed moneys in an appendix to its final report. That report stated:

At present, bank accounts and life insurance policies are deemed to be unclaimed monies and transferred to Government if they are inactive for three years. The present position was changed in 2012, from a longstanding arrangement that required an inactive period of seven years.

The Australian Bankers’ Association estimates that reverting to seven years would halve the number of claims. The Inquiry believes Government should act to ensure bank accounts and life insurance policies are deemed unclaimed after seven years of inactivity and that these monies should be held in a separate trust account.

The final report recommended that the government should define bank accounts and life insurance policies as unclaimed moneys if they are inactive for seven years. So, in the 2015-16 budget the government announced that effective from 31 December 2015 it would make a number of changes to the unclaimed moneys provisions in the Banking Act 1959 and the Life Insurance Act. The Banking Laws Amendment (Unclaimed Money) Bill 2015 will amend the Banking Act and the Life Insurance Act to specify that funds in bank accounts and life insurance policies cannot be deemed to be unclaimed and therefore transferred to the Commonwealth until they have been inactive for a period of seven years.

The bill will also introduce secrecy provisions into the Banking Act and the Life Insurance Act to ensure that even under a freedom of information request the particulars of the amount of unclaimed money or the person to whom the money is payable cannot be released to anyone other than the account holder or an agent acting on their behalf. This bill also amends the Banking Act to exempt funds held in foreign currency from the unclaimed money provisions; to exempt funds held by or on behalf of an individual under the age of 18 from unclaimed moneys provisions; to ensure that if an account holder or their agent notifies their financial institution that they would like their account to remain active at any time prior to its transfer to the Commonwealth that this account does not have to be transferred; and to remove the requirement to publish an unclaimed moneys gazette while still ensuring that the Treasurer can make the details of those with unclaimed accounts publicly available in such a manner as the Treasurer determines.

Even though the matter is quite simple in terms of what the government is trying to achieve here—that is, returning the period of inactivity from three years to seven years before the government can get their grubby fingers on the money and the savings of Australian taxpayers—it is actually quite a complex matter. I think it is worthwhile going into some detail of the terms of particular provisions of what the government is attempting to achieve. This bill makes amendments to the Banking Act and the Life Insurance Act to give effect to the unclaimed moneys measures announced in this year's budget. The bill extends from three years to seven years the period of inactivity required before funds from what are called authorised deposit-taking institutions, or ADIs—I do not want to get caught up in the big words—and life insurance provider accounts and life insurance amounts can be transferred to the Commonwealth. As such, accounts held by ADIs and life insurance providers will have to be inactive for a period of seven years before they are deemed to be unclaimed moneys and transferred to the Commonwealth. The bill exempts ADI accounts created for children and those that are held in a foreign currency from the unclaimed moneys provisions. It will also stop ADI accounts from being transferred to the Commonwealth where the account holder provides notification that the account should be treated as active after the account is assessed as unclaimed money at the end of the calendar year but before it is transferred to the Commonwealth.

The bill also promotes and protects the privacy of individuals who have accounts with unclaimed moneys by removing the requirement for the Australian Securities and Investments Commission, or ASIC, to publish details of unclaimed moneys in the annual unclaimed moneys gazette, introducing a secrecy provision to prevent access to information on unclaimed moneys via the Freedom of Information Act and making consequential amendments to the FOI Act to restrict access to information about unclaimed moneys under freedom of information requests. Chapter 1 of the bill, which is an amendment to the Banking Act 1959, will amend the Banking Act to provide for new arrangements for unclaimed moneys held by ADIs. Currently ADIs are required to assess all accounts to determine whether they consist of unclaimed moneys by 31 December each year and transfer any that do to the Commonwealth by 31 March the following year. An account held by an ADI consists of unclaimed moneys if, in the previous three years, there have been no transactions in the account other than interest or charges and the account holder has not satisfied the notification requirements by, for example, checking their account balance online or on the phone or specifically advising their bank that they would like the account to remain active.

Evidence suggests that many of the accounts that are declared unclaimed and transferred to the Commonwealth are effectively active, as the account holder remains aware of them. For example, around 15 per cent of unclaimed funds transferred from ADIs are reclaimed in the same year that they are transferred to the Commonwealth. Approximately 50 per cent of all funds transferred to the Commonwealth as unclaimed moneys are reclaimed within two years. The proportion of effectively active accounts that are transferred to the Commonwealth each year under the current provisions—that is, the three-year period for inactive accounts—increases the regulatory burden of the unclaimed moneys provisions for ADIs but also, and I think more importantly, for account holders—that is, the taxpayers and the savers of Australia who have put the money away for a rainy day but wake up one day to find that someone, 'Big Brother' or 'Big Sister' down in Canberra, has swiped their account. ADIs have to assess and transfer all accounts with unclaimed moneys to the Commonwealth even though many of the accounts are still effectively active. Once these accounts have been transferred, account holders have to complete the necessary paperwork and verify their details in order to reclaim their accounts.

To minimise the number of effectively active accounts that are transferred to the Commonwealth, regulation 20A of the Banking Regulations enables account holders to notify their ADI that an account should be treated as active. If notification is provided prior to 31 December—that is, when ADIs have to assess accounts as unclaimed moneys—then the account does not have to be transferred to the Commonwealth. If, however, the account holder provides notification after the account is assessed as unclaimed money on 31 December but before the ADI transfers the sum of money to the Commonwealth, then the amount must still be transferred. This is inconsistent with the treatment of accounts where the account holder satisfies the activity requirements, such as completing a transaction, after the account has been deemed to be unclaimed but before the funds are transferred to the Commonwealth, as these accounts do not have to be transferred to the Commonwealth.

The unclaimed money provisions currently apply to foreign currency accounts and children's accounts. The application of the unclaimed money provisions to these accounts does not align with how they are used by the community. Foreign currency accounts are generally used by consumers who are a little bit more sophisticated in relation to the settlement of their business transactions in relation to foreign currencies. Transferring these accounts to the Commonwealth under the unclaimed money provisions requires the account to be converted into Australian dollars, potentially exposing the account holder to exchange rate fluctuations. Given this risk and the fact that these accounts are used by such sophisticated consumers who are likely to know of these accounts, it is not appropriate to transfer them to the Commonwealth under the provisions. Likewise, children's accounts are generally established for long periods so that the money can be set aside in a high-interest account for a child to access on, for example, their 18th birthday. Transferring these accounts to the Commonwealth may result in some children losing out on higher interest rates because accounts transferred to the Commonwealth will only accrue interest at the rate of the consumer price index.

Details of unclaimed moneys held by the Commonwealth must be published annually in the Australian Securities and Investments Commission's unclaimed money gazette. Information on unclaimed moneys is also released under the Freedom of Information Act and is published on the ASIC website. Details of unclaimed moneys are also searchable online via the ASIC MoneySmart website. The level of information available has created the opportunity for groups to approach account holders offering to reunite them with their account for a fee. Account holders can reclaim their money from the government at no charge. The level of information could also potentially be used for identity theft.

The new law amends the Banking Act to extend the unclaimed moneys period from three years to seven years. The new law also provides that ADI accounts created for children and those with foreign currency accounts are exempt from the unclaimed moneys provisions. The new law stops ADI accounts being transferred to the Commonwealth where the account holder provides notification that the account should be treated as active after the account is assessed as unclaimed moneys at the end of the calendar year but before it is transferred to the Commonwealth. The new law amends the Banking Act to remove the requirements for ASIC to publish details of unclaimed moneys in the unclaimed money gazette and introduces a secrecy provision to prevent access to information on unclaimed moneys via the FOI Act. The Treasurer will retain the ability to publish information on unclaimed moneys, such as on the ASIC's MoneySmart website.

Chapter 2 of the bill will provide for new arrangements for unclaimed moneys held by life insurance providers. Currently life insurance providers are required to assess all accounts to determine if they consist of unclaimed moneys by 31 December each year and, similar to those with ADIs, transfer any such funds to the Commonwealth by 31 March of the following year. An account held by a life insurance provider consists of unclaimed moneys if there have been no transactions in the account other than interest or charges in the previous three years. Many of the accounts that are transferred to the Commonwealth are still effectively active, as the account holder, similar to those with ADIs, remains aware of them. Around nine per cent of life insurance accounts are reclaimed in the same year as they were transferred to the Commonwealth, and 50 per cent of all funds transferred are reclaimed within two years.

The high proportion of effectively active accounts that are transferred to and reclaimed from the Commonwealth creates a regulatory burden for life insurance providers and account holders. Life insurance providers have to assess and transfer all accounts with unclaimed moneys to the Commonwealth even though the accounts may still be effectively active. Once these accounts are transferred, account holders have to complete the necessary paperwork and verify their details in order to reclaim their accounts. Information on any unclaimed moneys is released under the Freedom of Information Act and is published on the ASIC website. Details of unclaimed money are also available to search online via the ASIC MoneySmart website. This level of information that has been available has created the opportunity for groups to approach account holders offering to reunite them with their account for a fee, similar to those under ADIs. But account holders can reclaim their money from the government at no charge. The level of information could also potentially be used for identity theft. In summary, this new law amends the Life Insurance Act to introduce new secrecy provisions and to extend the unclaimed moneys provision from three years to seven years from 31 December 2015.

We should consider how this has come about. It was an act of the previous Labor government, back in 2012, to reduce the period for unclaimed moneys to be transferred to the Commonwealth from seven years to three years. In 2012-13, the federal government was able to pilfer from Australian taxpayers and Australian savers a sum of over half a billion dollars.

When the previous government reduced the required period of inactivity before funds in bank accounts and life insurance policies could be transferred, the value of unclaimed money transferred to ASIC grew more than eightfold in a single year. Much of this money, however, was not truly unclaimed and the previous government's changes left many Australian families in a position of financial distress. It also imposed a large red-tape cost on industry which, first, had to transfer accounts to and then reclaim them from ASIC on behalf of their customers, often in the same year. This situation must not continue. It had a particular impact on the savings accounts of elderly Australians who had worked for decades to put money away for a rainy day or put money away for their children and grandchildren. They suddenly woke up one day and found that the people in Canberra had got their grubby fingers all over their savings. It is a shameful period in how we look after people who work to save money for the greater benefit of Australia.

In order to protect these account holders and industry, this bill returns the required period of inactivity before funds can be transferred from bank accounts or life insurance policies to seven years—that is, once they are truly unclaimed. A seven-year period had been in existence for a considerable amount of time. People knew that they had seven years. Reducing it—

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

Come on, fire up!

James McGrath (Queensland, Liberal National Party) Share this | Link to this | Hansard source

Do you want me to fire up? I am happy to fire up. I was going to take a gentle path, but if you want me to fire up I am more than happy to fire up. You know that. I am easily provoked.

Alex Gallacher (SA, Australian Labor Party) Share this | Link to this | Hansard source

Senator McGrath, address the chair.

James McGrath (Queensland, Liberal National Party) Share this | Link to this | Hansard source

Through you, Mr Acting Deputy President, I think this is a very good bill because it returns the savings of Australians to them and returns the period of inactivity of bank accounts before they can be taken from three years to seven years. The government of Australia should be helping people save money, not taking it from their bank accounts like some nefarious Ned Kelly.

Arthur Sinodinos (NSW, Liberal Party) Share this | Link to this | Hansard source

It is a pleasure and a privilege to follow Senator McGrath in this debate—a great senator from the great state of Queensland. In my remarks I want to do a number of things. I want to talk a bit about an aspect of history relating to the Banking Laws Amendment (Unclaimed Money) Bill 2015. It goes back to the period when I was Assistant Treasurer. I went on a radio program—I think it was on 2GB—and was being interviewed by Jason Morrison. I went on to talk about some legislative issues current at the time, but he immediately got into me on the issue of unclaimed moneys and the fact that in 2012 the former government had reduced the period before funds could be transferred to the Australian Securities and Investments Commission from seven years to three years, which had resulted in a large number of effectively active accounts being transferred to ASIC, and that left many Australians financially stressed. I was quite surprised at the strength of his feeling on this subject. It registered with me. It was also raised in the coalition party room and the Treasurer, Joe Hockey, undertook to examine the matter. This bill is the fruit of that consideration. I commend the Treasurer and the Assistant Treasurer, Josh Frydenberg, for following through with this particular bill.

When you have worked in government over a long period, as I have, you come across a lot of savings options. I suppose you could get to the point where you sometimes think that one savings option is as good as another, but you must never underestimate the public reaction to these things. There is no doubt that this particular measure struck a chord with a lot of people, and that of course was then reflected in the comments of media commentators, such as Jason Morrison and others. So, in one sense, you could say that this is the Jason Morrison bill. I am sure he will be chuffed that I say that about him. I do not think he is working in media any longer, but that shows the influence that people can have in setting some of these agendas, and I recognise his contribution on this particular bill.

This bill does a number of things. It implements a decision in the 2015-16 budget that, effective from 31 December this year, there would be a number of changes to the unclaimed moneys provisions in the Banking Act 1959 and the Life Insurance Act 1995. The bill amends the Banking Act and the Life Insurance Act to specify that funds in bank accounts and life insurance policies cannot be deemed to be unclaimed and therefore be transferred to the Commonwealth until they have been inactive for at least seven years. The bill will also introduce secrecy provisions into the Banking Act and the Life Insurance Act to ensure that, even under a freedom of information request, the particulars of the amount of unclaimed money or the person to whom the money is payable cannot be released to anyone other than the account holder or an agent acting on their behalf.

The bill also amends the Banking Act to exempt funds held in a foreign currency from the unclaimed moneys provisions. It exempts funds held by or on behalf of an individual under the age of 18 from the unclaimed moneys provisions. It ensures that, if an account holder or their agent notifies an approved deposit-taking institution, or ADI, any time prior to the funds being transferred to the Commonwealth that they would like their account to remain active, the account does not have to be transferred. It removes the requirement to publish an unclaimed moneys gazette while still ensuring that the Treasurer can make the details of those unclaimed accounts publicly available in such a manner as the Treasurer determines.

The unclaimed moneys provisions exist to protect Australians' forgotten savings and life insurance policies from being eroded by fees and charges over time. So the public policy intent behind the original measures is fair enough and sensible. After an account has been inactive for seven years, the funds in that account will be transferred to the government, where they will grow at the rate of the consumer price index, tax-free. No matter what, these funds continue to belong to their rightful owner and can be reclaimed at any time through contact with either ASIC or their financial institution. There is no fee charged for this service.

As I alluded to earlier, Australia has had provisions to effect the transfer of unclaimed funds to the government since at least the introduction of the Commonwealth Bank Act in 1911. Between 1911 and 2012 accounts must have been inactive for at least seven years before accounts could be transferred. In late 2012 the previous government reduced the required period of inactivity to three years. This resulted in half a billion dollars from thousands of accounts—that in many cases their owners were aware of—being transferred to the Commonwealth. This placed many Australians in a position of financial distress. Returning the required period of inactivity to seven years is expected to reduce the number of accounts transferred to the government each year by up to 50 per cent and reduce the regulatory burden on the community by $36 million each year. As I noted earlier, the changes are due to take effect from 31 December 2015. This means that no funds should be assessed as unclaimed until at least 2019 and no unclaimed funds should be transferred to the government until at least 2020.

There are, as I mentioned earlier, a number of exemptions. For example, many Australians set money aside for their children's future and trust that this money will continue to grow in value and be available for the children when, say, they turn 18. In recognition of this fact and to reward, not punish, those Australians working hard to contribute to their family's future, funds from children's accounts will never be transferred to the government. This is sensible. People putting the money away—normally the parents or perhaps the grandparents—clearly have a stake or an interest in those funds being properly invested and growing in value over time and therefore they are likely to keep an eye on those accounts. It is not a matter in such cases, I believe, of people potentially forgetting that those accounts exist. So this is a sensible provision for exemption.

Why is the government exempting foreign currency accounts from the unclaimed moneys provisions? Again, this is a sensible change. Accounts in a foreign currency are primarily used by sophisticated consumers to settle complex international transactions. Not only does transferring these accounts to the government potentially disrupt these processes; it also exposes the account holder to a loss, as their funds must be converted to Australian dollars at the prevailing exchange rate. So, as I said before, this was initially a budget savings measure, but we have to have equity and equity involves taking due account of the needs of the community, and the community have spoken loudly on this measure.

Finally, may I say that the red tape agenda is served by this bill as well, with a regulatory saving of $36 million per year. The federal government has shown its commitment to its deregulation agenda by the fact that it is prepared to incur a fiscal cost to reduce the fiscal balance by $158 million over four years from 2015-16 to implement this commitment. That shows genuine commitment to the regulatory process. On that basis, I complete my remarks.

Sam Dastyari (NSW, Australian Labor Party) Share this | Link to this | Hansard source

While I think that a lot of this bill is worthy and warrants the discussion of the Senate and that parts of this measure are a step in the right direction, it worries me that this type of banking reform is a priority for the government when so much of the banking reform that needs to happen in this country is not being undertaken. To start my remarks, I want to briefly touch on the issue at hand, which is how a government can best deal with unclaimed moneys.

The Banking Laws Amendment (Unclaimed Money) Bill 2015 largely reverses the measure introduced by the previous Labor government in 2012, and this is really about extending the period in which people can claim unclaimed moneys. There has been an extensive process of consultation and discussion. The government has said that this is somewhat of a priority and it has used this opportunity to bring this bill forward. Let us not kid ourselves: this has a considerable direct cost to the budget of $285 million over the next four years, from 2015-16.

When it comes to banking reform, my worry is that the government is choosing to undertake this kind of measure, whereas I believe that banking reform is needed in the area of credit cards, where the government has been very slow and very inactive. We now have a situation where there is $51.5 billion worth of credit card debt in this country, with 33.1 billion of that accruing interest. What does this mean? There has been a 47 per cent increase in credit card balances over the last 10 years. One and a half times the amount of credit card debt exists right now than existed a decade ago. The problem is that a select group of people are being artificially hurt by all of this, and they are the ones who are being hurt the most. According to a submission made by the Reserve Bank of Australia to a Senate inquiry into this issue, 27 per cent of people do not pay off their cards, and the number of cards itself is at the extraordinary level of 16 million. There is now more than one credit card for every person in this country who is eligible to have a card.

You could ask the question: 'There is $33 billion of credit card debt, and it's accruing interest; who's actually paying?' because you get out there and there are these fantastic products that look like they are at eight per cent or nine per cent, and credit cards that are not just the cards with the higher rates at 19 per cent to 22 per cent. Here are the facts. The people who are paying interest on credit cards are paying an average spread of 14¾ per cent, while across cards as a whole the spread is nine per cent. What do I mean by that? It is the gap between what it costs to borrow money and what it costs the bank to actually get the money. The cash rate at the moment is two per cent. The cash rate has continuously fallen over the past five years. Credit card interest rates have not fallen. And not only have they not fallen, but the people who are actually paying the interest—the people in the debt trap situation—are those on the higher rate cards. On average, they are paying 5¾ per cent higher than the average cards that are available.

You ask yourself: 'How has this industry been allowed to perform the way it is? How has this been allowed to occur?' And don't get me wrong—I think this is an issue that has grown and is actually becoming a bipartisan issue. As much as I would love to say that everything was rosy under the previous governments and that this government has failed to act—and this government has failed to act—I think that, while we took some steps in the last government, in hindsight there were more steps that we should have taken, and they are the steps we should be looking at taking now.

I just want to touch on some of these figures, just to understand how profitable an industry this is. There is $8½ billion worth of revenue generated by the credit card industry—$8½ billion—and $1.4 billion of that comes from fees. The average fee on credit cards, per card, for every person is $90. It is $90 on average you are paying in fees, either directly or indirectly. The reality is: most people are paying fees without realising they are paying fees. There is $1.5 billion to $1.7 billion that has developed through this entire process of interchange—the inter-merchant fees. And there is $5.4 billion that comes from interest.

Of course the cost of borrowing money in unsecured credit is always going to be more than the cost of lending it, and it is always going to have a reasonable mark-up. That is an understandable development. What I cannot understand, and what no-one has been able to explain to me or to our committee in our inquiry is: why is that gap now at a record level? Why is it that, in the past five years, as interest rates on loans for houses and every other thing have fallen in line with, or at least in relation to, the falling cash rate, credit card rates have remained stubbornly high? Frankly, I think it demonstrates perhaps a failure in this market.

There are those in the industry who will talk to you about just how many different products are out there. And it is half true. There are lots of different cards. There are not a lot of different products. You can get a lot of different cards with different kinds of rates and slightly different variations in what they are offering, but they are not fundamentally different products. If you want to shake up this market, you have to open the doors and allow in some fundamentally new products. I think there is a series of big ideas that need to be explored and which we are exploring through this process.

Firstly, we should be looking at the portability of credit card numbers. What does that mean? That means allowing people to take their credit card numbers with them in the same way as you can take your mobile phone number. Ten years ago we had this same problem in the mobile phone market. It used to be that you would go out there and you would buy a Vodaphone phone or an Optus phone or a Telstra phone and, when you did that, you had that number and that number was stuck with that company and you could not move it. To create more competition and to give consumers more power, one of the big reforms we did was to turn it around and allow consumers to have the power to take their mobile phone number with them. I think that is a big idea we should be looking at in the credit card space.

Secondly, I think we should have a discussion about what should be the maximum amount of interest payable on one sum of money. What I mean is this: if I have $1,000 worth of credit card debt then, surely, once I have paid $5,000, $10,000, $15,000 or maybe even $20,000 of interest on that one amount of money, it should be able to be written off. The idea that you can be in perpetual debt for the rest of your life because of one sum of money, regardless of how many times you have paid it off, is one that needs to change.

Thirdly, I think we need to be looking at putting some kind of floor on minimum repayments. Take credit card debt, and the minimum repayments that are structured over 33 years—or whatever figure the bank chooses. The ASIC requirement is simply that the bank itself is able to determine whether or not you have the capacity to pay. What worries me is where you have such fluid rules and the bank is able to make these decisions. Let us not kid ourselves: the perfect credit card customer is somebody who is too indebted to pay off the principal but so responsible that they are always going to be paying off the interest; that is the perfect credit card customer. And I think there needs to be some more rules. You should have to demonstrate a capacity to pay it back in three or five years—and that is what the British model has moved towards—before they actually lend you that money.

Fourthly—and, again, I am trying to look for some very practical things that we can look at doing—I actually think we need to be freeing up this market more. In some areas it has been overregulated, and I think we have to look at opportunities for new and different types of innovative lending. Things like the peer-to-peer models are exciting, and I think we actually have too much regulation in this space, on the evidence that I have seen to date—too much regulation to allow these new kinds of innovative lending platforms to be able to grow.

Finally, I think we do have to look at how advertising takes place, and what different types of advertising are to be allowed in this credit card space. So I think we need to be looking at practical, reasonable reforms in this area that will shake up the industry.

As to the specifics of the bill at hand—the specifics of what we are talking about here, which is a bill relating to unclaimed money—I think they demonstrate just the enormous amount of reforms that have to take place. And let us be clear: these are not simple reforms; they do have consequences. What is a reasonable proposal to stop situations by allowing a bit more flexibility in terms of the time period for claiming money does have other consequences. It has budget consequences.

We are also looking at things such as credit card reform, and that comes with consequences too. I want to put on the record what is perhaps one of the most legitimate concerns people have about enacting bold credit card reform, and that is that there is a danger of driving people out of the credit card market and into the payday lending, Cash Converters type of market. One of the things we have to be very careful of when we are looking at these kinds of reforms and changes is that we are not driving and pushing people into what I would deem as more dangerous, riskier types of products.

Massive reform is needed. Big changes need to take place. The statistics here are really borne out when you realise that the amount of non-performing loans in the credit card space is actually fairly small. When you consider that you are dealing with unsecured credit, you are only talking about two to 2½ per cent of credit card debt that is not repaid and not able to be reclaimed. So we are not talking about a huge amount of money, but nonetheless you still have that situation where the rates are going up.

We need to look at reforms in this sector as a whole that allow a lot more movement and a lot more flexibility. It is a true statistic that in Australia you are more likely to leave your spouse than you are to change your bank. I think a little bit more flexibility in that space, a little bit more movement and a little bit more opportunity to have people be able to change from one institution to another will lead to better banking outcomes. Perhaps in other circumstances it has not led to better outcomes, but I think in the banking space it certainly can!

In looking at this Banking Laws Amendment (Unclaimed Money) Bill 2015 the point I am trying to stress today to this chamber is that we cannot look at it in isolation. We cannot have the government say that this one piece of banking reform—and it is a fairly minor piece—is a big deal and a big priority when there are so many other spaces that can be looked at and need to be looked at. I have touched on the credit card space already, but I think that of banking as a whole we really need to be asking ourselves, 'How do we create a more competitive environment? How do we create an environment where there are better options out there for consumers?'

One of the things that worries me is that in the last round of estimates we had a discussion with the head of the ACCC, who was coming before us to give evidence, about the issue of competition within the banking sector. He made the quite honest, certainly accurate and, for me, perhaps a little bit startling revelation that price gouging is permitted and allowed, and what we have is perhaps a lot of price gouging. That does not mean that it is anti-competitive. What it does mean, as I see it, is that we need to be changing the rules to create more competition and to create more of that kind of competitive tension. We have $50 billion of credit card debt, $33 billion of it is accruing interest and consumers out there are suffering. I think people forget that there are real people out there who have found themselves caught in these types of debt traps and situations where they cannot get out. What worries me is that in so many instances credit card debt is behaving like a new form of payday lending. It is behaving as a type of money that people go to when they get desperate, when they have no other options and when there is no other place to go. As a result, they find themselves caught in these traps. Once you are in these traps, getting out of them is so, so difficult.

There are reforms that can take place. There are reforms that should take place. There are reforms that I think can be achieved in a very, very bipartisan way. I want to acknowledge some of the language from the Treasurer in this space because I think it has been the right language and quite strong. This process really began at around the time of the last round of estimates when the representatives and in some cases the heads of four different regulatory agencies—Treasury, the ACCC, ASIC and APRA—came to estimates and said that they could not explain why credit card rates are so high. They could not explain why it is so sticky. They could not explain why this gap between the cash rate and the interest being charged has come to the level that it has.

In response to that, the Treasurer set up a process where, as I understand it, he formally referred some of these matters to be looked at by the Council of Financial Regulators. I think that is a step in the right direction. I think the Treasurer should be congratulated for doing that. I also think that the work the committee is doing in this space is quite strong and will be able to assist with that. Part of the problem and part of the challenge from a regulatory framework is that you have four different agencies all responsible for different parts. ASIC is responsible for the consumers. APRA is responsible for the overall banking industry. Treasury is responsible for policy. The Reserve Bank is responsible for payments.

With the brief period of time that I have remaining I want to touch on the process that is being undertaken by the RBA at the moment. The Reserve Bank's Payments System Board, frankly, in my opinion, needs to be opened up, it needs to be more transparent and it needs to be giving the rest of us a lot more information about how they behave and what they do. When you have the other board of the Reserve Bank—the board that sets interest rates—coming out with minutes and detailed decisions and then you have the Payments Systems Board, the second board of the Reserve Bank, operating in a much more secretive environment that concerns me.

I have said this before and I will say this again: I know that there is a process going on regarding payments to the Reserve Bank. They are taking a longer process then we are taking through our Senate inquiry. I think it would be appropriate if they held off on making their recommendations to allow this public debate, especially on complicated issues such as interchange fees, to happen and to take on board the views of the Senate and the parliament through our committee process before they come to their decisions. I think that would be a sensible and appropriate way of having the parliamentary process feed into the processes that are being taken by them.

There is a big issue of credit cards out there. Today we are talking about a side issue, an amendment of the banking laws. There are some good parts to the legislation and there are consequences to this legislation. The point I want to stress is that this is not something that we can or should do in isolation. When we are talking about banking reform, we are talking about the big bits of banking reform and the big changes that need to take place. I really want to stress that one of the big changes that we can and should make is in the area of credit cards. Too many people are suffering, and there has been too much pain. Frankly, we have a banking sector that in the credit card space has not had the type of scrutiny and the type of competition it should have had. The reforms are simple, but there is no right-left solution to this. The solution is not simply more regulation or no regulation. In some areas I think that removing regulation is going to create a more competitive banking environment, and in other areas we should be looking at legislative changes. To quote the great Tony Blair: 'What matters is what works.' We have to be able to look at a package of reforms and a package of ideas that are going to work. We know what works when consumers get the best outcome. Currently, consumers are not getting the outcomes they need.

Jenny McAllister (NSW, Australian Labor Party) Share this | Link to this | Hansard source

I rise also to speak in support of the bill before this chamber and I note the important intent behind this bill, which is, quite simply, the protection of consumers. We need always to be looking at the interaction between consumers, the financial products that are on the market and the financial institutions which of those products.

In government we looked carefully at the costs that were accruing to consumers from inactive accounts—from those accounts which were sitting idle, accruing fees and seeing balances whittled away. The government has reviewed this and has come to the view that it would be preferable, on balance, to link the period before account transfer is triggered to seven years. Labor supports that proposal. The Australian Bankers Association has indicated that this would reduce the administration costs, the marketing costs and their complaints handling costs. Where we can get a good outcome for the industry and a good outcome for consumers, Labor is happy to support sensible proposals for reform.

As my colleague, Senator Dastyari, has pointed out, it is important to think carefully about the broader context in which consumers interact with the finance system. One of the observations I would make from my brief period on the Economics Committee is that it has become very clear to me that finance products are different from many other products which consumers might consider. By their nature, they are significantly more complex and, in particular, they are products which operate over time. For that reason consumers often find themselves experiencing significant difficulties in evaluating what benefits a particular product might confer upon them when compared to other products and what the best product for them and their family might be. There is, of course, a school of thought that says, 'Well, buyer, beware. It is up to consumers to make their own decisions.' We live in a society where consumers' ability to allocate the resources to the products and services that they desire is the foundation for efficient resource allocation and the best outcomes for society. That analysis is one that is broadly supported by both sides of this chamber, but we need to recognise that humans find in many cases difficulties and challenges.

We know more and more about human psychology and the challenges that individual consumers might have in making certain kinds of decisions. One of the things that has been drawn to our attention repeatedly in recent weeks on the Economics Committee is the significance of behavioural economics in explaining some of the odd things we start to see in financial markets, particularly when we are looking at retail products for ordinary households and for mum and dad consumers. Senator Dastyari spoke briefly about the credit card situation and the way that insights from behavioural economics manifest themselves in what has been described by a number of stakeholders as a failure of competition in that market. It is puzzling because a rational consumer would observe that they are currently paying very high rates on a particular credit card and that rational consumer might perhaps seek out alternative products which offer a better return on their investment and a better outcome for their family. But, for a range of reasons, that does not seem to happen in this particular market. Behavioural economics offers some explanations about why some consumers might not make good decisions in those circumstances.

Behavioural economics speaks to us about optimism bias—the idea in this case that, when people are evaluating products and rates, they do not consider rates carefully because they imagine themselves to be the kind of person who always pays their credit card debts off on time and thus will be the kind of person who never pays interest on any of their borrowings. But, of course, that optimism is misplaced. Many of the people who believe that to be so about themselves, who want to believe the best about themselves, in fact find that that optimism is misplaced; they do not pay off all of their debt each month and they do find themselves paying interest rates, sometimes very high interest rates.

It is related to another characteristic which is, of course, imperfect self-control. We know why people spend very large amounts of money on advertising, not just in the finance sector but in the retail sector more generally, and that is because it works. As humans we are most susceptible to many kinds of behavioural pushes and nudges that draw us to make decisions about enhancing our immediate wellbeing, even though it may not be in our long-term interest. That imperfect self-control, of course, leads to many people who have easy access to credit living beyond their means, accruing debts—in some cases modest, in other cases catastrophically large—which they are not able to pay off in the period required to avoid interest repayments. Again, people who find themselves in this situation will not be maximising the benefits for their family, despite the fact that they believe themselves to be making best efforts to do so.

There is another category of human failing that influences these markets also, and that is quite simply the transaction costs associated with acquiring information necessary to make good decisions. In the finance sector, where the information and the products themselves are already confusing—not least because they operate over time—the ability to acquire information that is useful to you as a consumer to make good decisions is sometimes dependent on an investment of a very large period of time and intellectual energy. To be honest, I know that in my family there is quite a lot going on. There are kids, there are bills, there is work, there is social life and, of course, for all of us in this chamber there are the political organisations that we belong to and the organisations in the community that we seek to support. In that context, spending the time to seek out information about the range of products that might be on the market, comparing them and making an evaluation about the extent to which they are suitable for you or your family, is an investment of time that many people find difficult to make.

One of the recommendations that we are seeing coming through very strongly from the Senate inquiry process is about the simplification of the information available to consumers when they are choosing products and making sure that comparing apples with apples is something that is simple to do, and making sure that people's eyes are drawn to the right thing when they are choosing a financial product, the thing that is most in their interest as consumers. What we do know from survey information is that, when people are making decisions about what products to choose, they are often focusing on entirely the wrong thing. They are looking at how it is going to go in terms of rewards points; they are considering whether or not it is a product that is sitting with their existing financial institution. They are, in most instances, not looking at the rate of interest payable and they are certainly not looking at the fine print about the penalty interest rates that might apply should they find themselves in financial difficulty. One of the things that we see in terms of recommendations are about greater information and better information to be made available to consumers by the providers of retail products.

Senator Dastyari spoke about the human costs of the failures of competition in this sector and the market failures which are delivering suboptimal outcomes for society. Some of the evidence that we have heard in the credit card inquiry, in the managed investment products inquiry, have been shocking indeed. I will admit that I have been close to tears hearing stories from some individuals whose lives have been comprehensively turned upside down by interactions with institutions and financial advisers who have served them poorly and served the interests of them and their families very poorly.

John Williams (NSW, National Party) Share this | Link to this | Hansard source

It has been terrible.

Jenny McAllister (NSW, Australian Labor Party) Share this | Link to this | Hansard source

It has been terrible, Senator Williams. One of the areas that I am most keen to see addressed are some of the particular impacts that fall upon women—

Debate interrupted.