Jane Prentice (Ryan, Liberal Party) Share this | Hansard source

By introducing these changes to the National Consumer Credit Protection Act, these amendments form part of a knee-jerk change put forward by this government. Given this Labor government's track record of unsuccessful and bungled delivery of change in Australia, I am understandably apprehensive about the possible outcomes.

The banking sector is one of the most important industries in Australia. Given the world that we live in today, it is of the utmost importance that the services provided by banks deliver the best possible outcomes for consumers. Increased competition within this sector will help to improve these outcomes and deliver better services for all Australians.

However, we must be wary of knee-jerk reactions to perceived problems. Australia's banking sector fared better through the global financial crisis than that of any other OECD country. Whilst we saw massive runs on Northern Rock in the United Kingdom and Bear Stearns in the US, the collapse of Lehman Brothers, the acquisition of Merrill Lynch, the bailout of Morgan Stanley and Goldman Sachs, and the US federal takeover of Fannie Mae and Freddie Mac, the Australian sector, whilst taking a hit, did not teeter on the precipice of destruction like others did around the world.

That was due, in a large part, to our superior regulation system. Of course, the responsible economic management of the Howard-Costello government provided an unparalleled cushion for the Australian economy. However, the system of regulation present in Australia, with both ASIC for financial services and APRA for the banking sector, helped keep us out of the storm.

The dovetailing of these two regulating bodies was real reform of the banking sector in Australia. It was considered and responsible. Whilst the banking sector is in need of review, given the massive changes the world has undergone, we must ensure that any such reform is not knee-jerk and reactionary and that we study and understand the unintended consequences of any such reform.

Measures that this government is proposing, with the stated purpose of consumer protection, could in fact have the exact opposite effect. Banning exit fees, for example, could very well have a detrimental effect on smaller lenders, severely decreasing competition. Such a decrease would further centralise big lenders' purchasing power, leaving the consumer worse off.

The banning of exit fees is a classic example of this government's policy of reaction and it is important to briefly discuss this today as an example of why we must ensure that the current amendments do not follow in the same vein. According to the Australian Bureau of Statistics, small lenders' market share of mortgages has already fallen, from above 13 per cent in the period pre the global financial crisis 2007, to just 1.2 per cent in February this year. The ability to recuperate the costs of establishing a mortgage through an exit fee penalty is extremely important to a small lender, who has less of an ability to absorb this outlay than the big lenders.

Whilst at face value the banning of exit fees may seem like a popular measure, it is also regarded as a major threat to competition within the sector. Even the Senate Economics References Committee inquiry into banking competition echoed these concerns and recommended that the government re-evaluate the outright ban, which is currently planned to come into effect on 1 July this year. The proposal is a perfect example of how a rash and rushed decision can in fact have unintended consequences and exacerbate a situation rather than fix it. The proposal is a perfect example.

The amendments put forward today have the usual, distinctive ad hoc Labor feel to them. Australia's strong banking sector should not be put to the test unnecessarily through poorly thought out policy. This is why the coalition has been engaged in the issue of banking reform for a long time. We take competition in the banking sector seriously and support sensible measures to improve the industry.

Some elements of the bill have merit, such as the changes to the hierarchy of payments under credit card contracts, which would facilitate consumers to pay off the transactions with the highest interest rate first. However, it seems that many of the considerations in relation to credit cards are poorly drafted and the concerns of the industry have not been fully addressed.

I am therefore concerned about the lack of clarity within these government proposals. It is particularly apparent with retrospectivity in relation to existing credit contracts. Currently, the bill proposes that the changes being made to credit card regulation apply only to new contracts. That means that current credit card holders would not benefit from the reform. This raises concerns and the government has provided no discussion as to why existing contracts should not be subject to the changes proposed in this bill. If there is a clear reason, be it legal or constitutional, as to why existing contracts should not be included, I call upon the government to make these reasons known.

Additionally, it seems to me that poor drafting now appears to, in effect, allow every new credit card customer to be provided with an automatic 10 per cent limit increase. This clause essentially aims to protect consumers by disallowing lenders to charge high fees for drawing over their limit. However, it is implemented in a confusing way that does not provide simplicity or clarity for the consumer. Also, this 10 per cent default buffer applies to all contracts, unless the customer has chosen to opt out. This, effectively, results in a credit provider having no option but to provide this buffer, whereas it is currently at the lender's discretion to allow or disallow an overdrawn transaction. It essentially locks lenders in to providing 10 per cent more credit, reducing flexibility and potentially having many negative unintended consequences.

This gets to the core of my concern about these amendments. They take away flexibility and assume that, for credit cards, one size can fit all. That is simply not true. By locking lenders in to prescriptive regulation, this bill could unintentionally result in credit providers being forced into acting in a way that does not best suit their customer and these regulations would affect every provider. The customer would no longer have the choice of leaving their current lender in search of a better deal. Given this, I ask the government to truly look at the unintended consequences of this bill. Considering the number of amendments to legislation that have been put before the House this year alone that deal with little more than retrospective clean-ups, it would be much more sensible and efficient for the government to simply get the drafting right in the first place by properly considering these factors.

As well as the abovementioned issues with the provisions in relation to credit cards, I have concerns about the changes to home loan regulation, particularly the time frame the government has set down for these quite time-consuming changes to be made. This will in turn affect the rollout of the key facts sheet, which, under this bill, all mortgage providers must present and provide about their home loans. The proposed key facts sheet is a one-page sheet that provides a summary of a mortgage provider's home loan that can easily be used to compare different institutions' offerings. These key facts sheets are meant to be provided by September this year; however, it is now June, and the government is yet to inform stakeholders as to what is required for these sheets—how they must look, what they must contain and how they will cover fixed-rate loans or lines of credit. This will give providers just two months to create, test and implement the new system and train staff around the country to be competent with this new measure. The credit provider alone is responsible for these key facts sheets. They cannot be managed by a mortgage broker or manager.

The Treasurer has taken almost 12 months to get to this stage of the legislation, which is still riddled with poor drafting and unintended consequences. Yet he is now trying to give the industry just two months to comply, assuming that the legislation receives royal assent this month. Given the harsh penalties that will be enforced if these key facts sheets do not meet the regulatory requirements, a two-month time frame is unrealistic and arrogant and is evidence that the government does not particularly care how its legislation actually affects people. It has regard for superficial appearances only.

Furthermore, the introduction of a key facts sheet once again assumes that a one-size-fits-all approach will work. It will not. The introduction of such a scheme places an obligation on a whole sector of people, including mortgage brokers and mortgage managers, and imposes very high penalties for a product that is already widely available. A key facts sheet, in reality, is simply an outline of what is potentially available. It is not a finalised assessment based on an individual's situation and cannot be substituted for one. A mortgage is a huge commitment for most people. To believe that reform can come from what is essentially a simple summary sheet is irresponsible, unrealistic and, to be honest, quite a frightening simplification by the Treasurer of a very complex issue.

Whilst the coalition will not oppose this bill, the bill raises real questions as to the government's ad hoc approach to policy. For four years now this government has been short on reform and has broken promise after promise. This is, quite rightly, turning the electorate against them. With these amendments we see a scrambling, haphazard response to an extremely complex issue. This bill highlights the common sense of the coalition's call for a full root-and-branch review of Australia's financial system. I implore the government to take the same approach.

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