Sam Dastyari (NSW, Australian Labor Party) Share 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.