Bruce Scott (Maranoa, National Party) Share this | Link to this | Hansard source

At the end of April this year, the total balance outstanding on credit cards in Australia was some $44.4 billion. That is about twice the federal budget surplus. I know that credit cards are now a way of life. The Reserve Bank of Australia estimates that there are some 14.1 million credit card accounts across the nation and almost a million young people between the ages of 18 and 24 own a credit card. So it is important that at this time of uncertainty in the global financial market all Australians, young and old, are confident in their ability to deal responsibly and sensibly with money and debt.

I believe it is also a responsibility of Australia’s banks to provide the best knowledge and support to their customers so that they are adequately equipped to make solid financial decisions. Yet at the moment it is quite common for banks, large and small, to send letters to their customers with unsolicited offers to increase their credit card limits. All one must simply do is complete the form accompanying the letter and return it to the bank. Not much effort is involved on the part of the customer. He or she simply lets the bank dictate his or her credit limit. The customer then finds that he or she has an increased limit—sometimes substantially increased, despite the customer having been happy, most likely, with their previous limit. In fact, there is anecdotal evidence that people will take out a second credit card simply to pay off the balance on their first card without reducing any debt. This is fiscally and socially irresponsible. This is how people find themselves with uncontrollable debt.

I call on the federal and state governments to amend financial legislation so that the only way a credit card limit can be increased is by the customer approaching his or her financial institution—not the other way around. The current global financial crisis is a lesson to all that lending to a person unable to adequately repay their debt can have disastrous and far-reaching consequences. Better education is needed for borrowers. A more honest and fair approach is required by our financial institutions. With the current global financial crisis, it is imperative that we ensure Australians are adequately equipped to spend wisely and deal with debt.

The former Liberal-National coalition government understood the importance of financial responsibility. Not only did we pay off the previous government’s $96 billion debt but we handed the current Labor government a $20 billion budget surplus and provided Australians with a secure, robust economy; one in which they could have faith and confidence. In 2005 we established the Financial Literacy Foundation to give Australians easy access to important financial information and advice.

Last year the foundation released its report on the financial literacy of Australians. Whilst it is reassuring to see that Australian consumers consider themselves to be confident in their ability to deal with credit card debt, some of the report statistics were rather alarming. Twenty per cent said that they do not regularly pay off the balance owing on their credit cards, 13 per cent said that they make the minimum repayment on their credit card balance and 17 per cent said that they were not comfortable with their level of debt.

Supporting my motion is the alarming statistic that 21 per cent said that they will use debt to buy things that they cannot afford. One in five Australians are buying items that they cannot afford, yet our banks regularly send them letters offering to increase their credit card limit. This is simply not financially responsible and we must ensure that we do everything in our power to ensure Australians do not fall into a cycle of debt. I commend the motion to the House.

Steve Georganas (Hindmarsh, Australian Labor Party) Share this | Link to this | Hansard source

I too rise to give support to the motion before the House on the scandalous conduct of some of the financial institutions that are tempting members of the public, often those with the most limited capacity to service debt, to accept offers of increased credit at interest rates that are, I am sure, the highest in the financial market. This is a big issue. It is an issue as big as the debt that people accumulate. It is as big as the volume of money that is wasted on extraordinarily high interest rates and as big as the assets that can be lost through default. It is as big as the hole that unaffordable debt can leave in a person’s life.

The Reserve Bank of Australia observes that the ratio of household interest payments to disposable income has skyrocketed in the few years since 2003. For decades the interest payments ratio has been in the vicinity of six to eight per cent of disposable income. Since 2003—in the last five years—this has skyrocketed to between 12 and 14 per cent. The limits of credit card accounts without an interest-free period have increased from $15 billion in 1995 to $50 billion in 2002 and to $110 billion this year. Outstanding balances on credit and charge cards have doubled in the last six years from $22 billion to $44 billion.

Interest charged on credits cards has, for a number of years, been in the vicinity of eight to 10 per cent more than the standard variable rate. People are currently paying 19½ per cent instead of 9½ per cent. Financial institutions and loan sharks continue to issue credit cards without regard to people’s capacity to pay, offering quick but very expensive cash availability, costing many people the proverbial arm and a leg for the convenience of accepting offers of readily available cash, right there and then.

This is an issue that seriously affects many Australians of all walks of life and in most income brackets, but of course it has the greatest potential to devastate those with the most limited means of servicing and paying off debt. The House of Representatives Standing Committee on Legal and Constitutional Affairs heard last year of the failure of self-regulation within the financial industry to impede irresponsible lending practices that continue today—whether it is the practice of targeting elderly persons who have equity in their own homes and offering them credit cards to transfer equity into very expensive debt, or the practice of targeting others on limited or fixed incomes who do not even have the asset base to cover financial difficulties should they arise. This particular section of the finance industry is geared to maximising financial returns through debt servicing and even penalties for breaches of conditions, maximising their return on the back of unscrupulous manipulation and exploitation of those who just cannot say no.

This issue has been around for a long time. Parliaments around Australia know of this issue and the difficulties that unsolicited credit offers can cause for many of our fellow Australians. The traditional question always needs to be addressed. Within Australia we have distinctions between the jurisdiction of the states and the territories on the one hand and the Commonwealth on the other. Recent banking issues raised within my electorate office pointed to the fact that mortgage lending by the banks and credit unions is a Commonwealth matter but loan sharks and similar businesses were a matter of state consumer protection legislation. This distinction was seen a few years ago when the Australian Capital Territory passed the Fair Trading Legislation Amendment Bill designed specifically to meet the needs of the financially vulnerable in the ACT community.

A coordinated and comprehensive approach to financial institution practice is needed within Australia. Having state laws regulating financial businesses operating products within state boundaries simply does not make sense. That is why this Rudd Labor government has had its green paper on financial services and credit reform in circulation with a view to doing what is identified in its title: ‘Improving, simplifying and standardising financial services and credit regulation’. The purpose of this paper is to consult stakeholders about a range of financial services and credit reform initiatives, including consideration of the most appropriate regulation of a range of remaining credit products such as credit cards, personal loans and microlending. These issues, from key initiatives included on the COAG reform agenda and the outcomes of the paper consultation process, are due to be put to COAG in the very near future.

I would like to congratulate the government for moving on this issue. I look forward to learning of the outcomes of the government’s consultations in support of the little players, the vulnerable and those who need every bit of help they can get when dealing with the more unscrupulous within the finance industry. The Commonwealth should now look to what we can do. There may be those who simply blame those consumers who sign the form for bringing financial difficulties upon themselves, or those who do not do the homework or exercise the self-discipline to refrain from accepting an offer to triple their available credit. (Time expired)

Michael Johnson (Ryan, Liberal Party) Share this | Link to this | Hansard source

I am very pleased to support the motion by my friend and colleague from Queensland the member for Maranoa because I know that the people of Ryan would be very warmly supportive of the spirit of his fine motion. I want to specify on the record for the people of Ryan that the motion is about amending legislation to prevent credit providers from sending unsolicited letters offering an increased limit to credit card holders and to note that amended legislation would stipulate that, for a credit card limit to increase, the cardholder must make the first approach to the credit provider.

Let me say very strongly that, as someone who believes in free enterprise and the place of businesses in our system, I appreciate and respect the role of banks in our community. They are an important part of our economic architecture. I also want to make it very clear that I do not support extreme capitalism and I do not support exploitation by any business, including banks. Governments must have a role in consumer protection. This extends to protecting consumers from over-enthusiastic bankers.

My father used to say to me, ‘Son, neither a borrower nor a lender be.’ Maybe this has some merit but, of course, in our modern system people need credit and banks are one source of that credit. Banks are very profitable in this country. They are global businesses as well. They rest very much on the mums and dads in our communities all over the country. They rest very much on their profit from ordinary people—from people starting businesses to young couples who might have just got married and are looking to buy a car or a home. So banks have a very strong place in our society. A tool through which young people and all kinds of consumers are to exercise some economic freedom is credit cards. Credit cards are very much a part of our lifestyle. Many of us would almost say that they are an indispensable tool but, at the end of the day, this piece of plastic is potentially very dangerous to people who do not fully understand and appreciate its power. I call on the federal government and on all legislators across this country, particularly here in the House of Representatives, to take a very considered view of this motion. It will protect people who might be vulnerable or somewhat exposed to the heavy hand of some banks and bankers who might try to take advantage of certain consumers.

I have received many letters from various banks seeking me to be their client and from the bank I do business with to increase the limit on my credit card. Very wisely, I declined to do so. I thank my beautiful and lovely wife who in particular says to me, ‘Michael, be careful of banks.’ She is a very wise and lovely person and makes sure that I fully understand how banks might be trying to take advantage of me as a consumer because I do not take much notice of financial matters.

I want to point out to the people of Ryan that the banks in this country are certainly doing very well and enjoying great profits. That is why I remind the banks that, in the spirit of good business practice and their important role in our society, they should appreciate the position that they have versus the position of consumers who might not be as aware of the relationship between the two stakeholders.

I want to draw the parliament’s attention to the profit of the Commonwealth Bank. The net profit after tax on a statutory basis increased seven per cent to $4,791 million and on a cash basis by five per cent to $4,733 million. In the short time left to me, I will point out that the Westpac Bank in its press release on 1 May 2008 announced cash earnings of $1,839 million for the six months ending 31 March 2008, up 10 per cent. After including significant items, the net profit after tax was up 34 per cent to $2,202 million for the six months. So they are two successful banks. I congratulate them on their profits but also remind them very strongly that they would not survive without the hardworking Australians who bank with them and therefore that they should take care of their customers.

Amanda Rishworth (Kingston, Australian Labor Party) Share this | Link to this | Hansard source

I rise tonight to support the essence of the motion proposed by the member for Maranoa. However, I would like to point out that at the moment consumer credit law does lie with the states and territories. This is one of a number of financial consumer issues that the federal government can work with the states to reform. I am pleased to see that the Rudd government is doing just this.

The motion before us tonight brings attention to unscrupulous marketing tactics that encourage people to increase credit limits on their credit cards. More and more Australians are opting to purchase basic goods on credit. This is coupled with an increasing number of outlets providing credit card facilities. For example, you can even use your credit card at McDonald’s. With an average of 2.2 credit cards per Australian, providers of credit cards need to behave in an ethical way that does not trap the most vulnerable people into unserviceable debt. Reserve Bank statistics reveal that, over a one-year period, the national credit card debt has blown out, with the average credit card debt being $3,200 per card. This compares with the average debt of $2,000 per card less than two years ago. We have seen a significant increase in debt per card. This rise in credit debt is concerning, especially if it translates into more consumers unable to service their debt.

In a survey conducted in 2007 by Veda Advantage, 75 per cent of those surveyed reported that they were worried about their ability to make their debt repayments over the next 12 months. Alarmingly, over 16 per cent of people in financial difficulty are using large portions of their income to meet debt payments and one per cent are unsure of how they are going to make their next payment. The anxiety of credit stress causes significant suffering and can often lead to mental health issues such as depression, anxiety and insomnia. Not only does financial strain take its toll on individuals, it is also a contributing factor to many family breakdowns. That is why I am pleased that the member for Ryan has been consulting with his wife to make sure that they deal with their financial situation in a responsible manner.

The motion before the chamber today refers specifically to the need to prevent credit card providers from sending unsolicited letters offering an increase in credit. Essentially the practice results in tempting consumers with more credit even if they have not requested it. This practice has been raised by constituents in my electorate of Kingston on numerous occasions. I have heard many stories of my constituents who have been annoyed, frustrated and at times even caught by this practice.

In particular, it has been brought to my attention that these unsolicited letters offering an increase seem to be sent only when customers pay interest on their credit card debt. One constituent reported to me the following scenario. For many years this constituent always paid in full each month the amount owing on their credit card. During this time they never received a letter offering them a credit increase. These letters only came when my constituent was unable to pay the full amount and was charged interest by the bank on their purchases. This scenario did not occur once but was a regular pattern: a letter offering more credit was sent only when interest was charged and not during the periods of time when full repayments were made. This type of practice is appalling to me. Not only are credit card providers trying to entice people to obtain more credit but it also seems that they encourage this when credit cardholders are unable to pay off their full repayments.

I support the concept in this motion proposed by the member for Maranoa that it should be up to the consumer to initiate a request of a credit card limit to be increased. This would ensure that consumers are in control of their financial destiny. As I highlighted in my opening remarks, the responsibilities for consumer credit law do lie with the states and territories. However, I do recognise that the Rudd Labor government is very keen to work with the states and territories to reform this area of legislation. Therefore, I urge all states and territories to look at this piece of legislation and to act accordingly.

Sussan Ley (Farrer, Liberal Party, Shadow Minister for Housing) Share this | Link to this | Hansard source

I appreciate the opportunity to speak in the House today on unsolicited offers to increase credit card limits. For many of us credit cards are a necessary evil, but for some, as we have heard so eloquently from the earlier speakers, they are an absolute noose around one’s neck. We have all heard from constituents that have been completely caught in a credit card trap where they simply move from credit card to credit card, taking advantage of low- or no-interest upfront fee periods and then moving to another card or having two or three credit cards going at the same time, all of which adds up to circumstances where it is completely impossible to repay the balance. In many cases, if they have got equity in their home they will capitalise that interest and payments from the credit card into a home loan, and that is considerably adding to the current home loan affordability crisis.

I would like to remind the House of what I see as a worrying bubble in consumption spending, and certainly much of it is fuelled by credit card debt. If we look at the level of household debt as a percentage of income, we see that in 1988 it stood at 30 per cent but now it averages 160 per cent. On an economy-wide scale, as we have seen, this leaves us open to economic shocks. On the level of household income, it leaves us open to enormous household income shocks to have an increase in personal debt going from an average of 30 per cent of your income to 160 per cent. We all know that consumption patterns have changed quite remarkably in the last generation. As I said, I am worried about the bubble of credit card fuelled debt that is a feature of our lives today. So I am very supportive of this motion.

Unsolicited credit card limit increase offers are often just too good to be true. Companies use words like ‘Congratulations, your increase is pre-approved’, ‘Get a little more out of every day with a credit limit increase’, ‘This is not something to be missed’ et cetera. But consumer advocates and policymakers are concerned about unsolicited credit card limit increase offer marketing strategies and the likelihood that they will lead to more consumer debt, particularly for low-income and otherwise vulnerable consumers.

The Consumer Action Law Centre says that there should be no doubt that banks and credit providers use psychological manipulation to create an environment where certain customers are convinced, often against their better interests, to accept an unsolicited credit card limit increase offer. Creditors are supposed to check a customer’s capacity to repay any extra debt. The increased credit offers get around this by putting in small print: ‘I confirm that if I utilise the new credit limit that is available on my card, I can repay my increased minimum monthly payment of $X as required by lender Y credit card terms and conditions without substantial hardship.’ It is a tiny little line of tiny print at the bottom of the page!

We know that people open these letters when they are at their most vulnerable. They may have two credit cards maxed out. They may have a store card which has some fantastic rate of interest. They may have an interest-free period that is just running out with Harvey Norman. All of these may be combining and this may seem like an offer that they simply cannot resist. When they should be going to a financial counsellor and saying, ‘Let’s get this sorted out and get into control again,’ they are in fact just taking these offers of extra debt.

I do not want this to be a bank-bashing exercise. It has been quite accurately pointed out that the banks run responsible account management practices, but I think they have let their credit card arms get out of hand and I think they need pulling back into line. I do not think it is something unreasonable for the banks to do. I know they probably feel quite defensive after the motion here tonight, but I urge them not to feel defensive but to take action and recognise that, from a consumer’s point of view, enough is enough. The Banking and Financial Services Ombudsman found that lenders who do not appropriately investigate the borrower’s capacity to pay can be liable for maladministration, but I have never heard of any instances of that, so I do not know that the ombudsman’s office is working effectively in that case. I would like to think it could.

Twenty-one letters were analysed by Deakin University Business School researchers in a study of this subject, including one from GE Money which offered a borrower a 39 per cent increase on an existing $10,250 credit card limit, with the opening words ‘I have some great news’. There is no great news in this subject whatsoever, and I urge support of the motion. (Time expired)

Melissa Parke (Fremantle, Australian Labor Party) Share this | Link to this | Hansard source

The Rudd Labor government is committed to taking the pressure off family budgets and tackling the problem of spiralling consumer debt with long-term, considered policy. The action proposed by the member for Maranoa to deal with the potential danger of unsolicited credit is in itself neither a solution to the debt burden and other financial problems that many families are already trying to cope with nor a complete protection against the accumulation of further unwise debt. In fact, in the current circumstances one might observe that there is likely to be considerably less appetite for personal credit and less capacity to extend such credit as a result of the present global financial turmoil. Indeed, considering the fact that it was under the Howard government that personal debt exploded to its existing levels, one might say that that particular ship has sailed.

I would also note that consumer credit law is currently a responsibility of the state and territory governments. Nevertheless, through the Council of Australian Governments, COAG, the Rudd government has taken the initiative of developing a system of national regulation of consumer credit, to be administered by the Commonwealth. When this occurs, the Commonwealth will be in a position to better monitor the operative framework of consumer protections. Cooperative national regulation of consumer credit, led by the Commonwealth, will provide a consistent regime that addresses the gaps and conflicts that currently exist. The new scheme will introduce licensing, conduct, advice and disclosure requirements that meet the needs of consumers and businesses alike and that will ensure that consumers are better protected in their dealings with credit products and credit providers, including brokers and advisers.

We need to address the reasons that people turn to credit they cannot afford and accept credit they have not sought. Common sense tells us that the two main reasons for this are, first and foremost, that people are overwhelmed by financial pressures and, second, a lack of appreciation of the risks and costs involved in taking on debt, especially credit card debt. In those terms, constraining the ability of credit providers to offer increased credit limits may in the end be less effective than increasing the financial literacy of Australians. There are some great programs and information services available to the public. One task of government is to ensure that the financial planning information that is available reaches those who need it through effective financial education, in formal schooling, through government service providers such as Centrelink and through adequate support to non-government service providers such as community legal centres.

In my electorate I know that the Fremantle Community Legal Centre receives a steady stream of people who use its financial counselling service. From my time as the solicitor in charge of the Bunbury Community Legal Centre I have seen firsthand the desperate financial situations that people can find themselves in and the value therefore of proper financial counselling. I look forward to the report of the COAG Business Regulation and Competition Working Group which is due next month and looks at the regulation and provision of financial counselling.

I say in conclusion that the action proposed in the motion before us today is presently a matter for state and territory governments, with their jurisdiction over consumer credit laws. Nevertheless, it is true that, through COAG and through a range of other measures, this government is committed to tackling the full scope of the reforms needed to protect consumers and to make our financial system more transparent and safely regulated in the interests of Australian families. The issue of unsolicited credit offerings will be considered as part of this process.

Alby Schultz (Hume, Liberal Party) Share this | Link to this | Hansard source

Order! The time allotted for this debate has expired. The debate is adjourned and the resumption of the debate will be made an order of the day for the next sitting.