Senate debates

Wednesday, 14 February 2018

Bills

Treasury Laws Amendment (Banking Measures No. 1) Bill 2017; Second Reading

12:31 pm

Photo of Deborah O'NeillDeborah O'Neill (NSW, Australian Labor Party, Shadow Assistant Minister for Innovation) Share this | Hansard source

Labor will support the Treasury Laws Amendment (Banking Measures No. 1) Bill 2017 and are supportive of the measures in this bill; however, we do note the government's poor record when it comes to standing up for ordinary Australians against the big end of town. When the Treasurer introduced this bill into the House of Representatives on 19 October 2017, he spoke of the government's taking-action-now approach to banks. Of course, we know that 'taking action now' was code for delaying the one action that was actually needed with respect to the banks—a royal commission. In fact, barely over a month after the Treasurer introduced this bill, he fronted up with the Prime Minister to announce, in the backflip of all backflips, a royal commission.

Labor is pleased that, after stubbornly resisting a royal commission and defending the banks for so long, the Prime Minister finally bowed to pressure from Labor and agreed to a royal commission into the banks. The Prime Minister spent more than 600 days fighting Labor's call for a royal commission into the banking and financial sector. This was despite the fact that there have been far too many examples of poor conduct on the part of the banks that have come to light in recent times, including illegal activity, misconduct, inappropriate financial advice, insurance claims unfairly declined, fraudulent activity, cover-ups, the targeting of whistleblowers, and irresponsible lending. It was disappointing that the Prime Minister only agreed to a royal commission when the banks gave him a permission slip. This is everything you need to know about this Prime Minister: he only agreed to Labor's royal commission when the banks told him he had to. Even then, we knew that he did not fully believe in a royal commission, declaring that it was 'regrettable'.

Turning to the provisions in the bill, I first want to talk about the measures in relation to credit cards, which we've been waiting for for quite some time. It was in 2015 that a Labor-led Senate inquiry first urged changes to credit card regulation, and it was in response to the recommendation of the inquiry that the Treasurer promised to progress changes to credit card regulation. It was back in May 2016 that the government promised to bring forward draft legislation 'in the near term'. Unfortunately, the Treasurer appeared to forget about this promise, and it took Labor pushing for these reforms to compel him to announce these measures in the 2017 budget. Despite the May 2016 promise of draft legislation 'in the near term', it took the Treasurer until August 2017 to release draft legislation. Thanks to the government's delays, most of these improvements to credit card protections won't come into force until 2019. It's disappointing that consumers will have to wait until 2019 for most of these protections to come into force. All this is from a Treasurer who loudly proclaimed his 'take action now' approach to the banks while shielding them from a royal commission.

With that said, we welcome these measures, which will improve consumer protections in relation to credit cards. Labor has consistently been calling for these measures. We're glad to see them finally put forward. One of the changes is the tightening of responsible lending requirements for credit cards. This bill would require that the suitability of a credit card contract be assessed on the consumer's ability to repay the credit limit within a certain period. That period is to be set in a legislative instrument made by ASIC. We will be watching closely to see what the period is and will listen to stakeholders when it's released. It's very important that banks and issuers lend responsibly, given the significant impact that credit card debt can have.

Another of the changes is the standardisation of the way credit card interest is calculated. Under this bill, credit card providers are prohibited from imposing interest charges retrospectively to a credit card balance or part of a balance that has had the benefit of an interest-free period. When respected governance adviser Phil Khoury did a review of the Code of Banking Practice, he looked at the way that banks were calculating credit card interest and found:

… few customers would be aware that this was happening at all, let alone understand the reasoning behind it. In my view, there are issues of substantive fairness … and of perceived fairness … be dealt with.

He said that one interest calculation method the banks were using was:

… unacceptable and must be prohibited. It is substantively unfair in applying interest and (if understood) would be perceived by customers as just plain 'tricky'.

In response to Mr Khoury's findings on this issue, Labor called on the government to bring about this change to the law. We're pleased to finally see it here before the Senate.

We're also pleased that banks will now be required to allow online cancellation of credit cards. It makes sense to require banks and other card issuers to allow simple online cancellation of credit cards. If you can apply for a credit card online, you should be able to cancel it online. Last year the CEO of one of the big four banks said that they didn't allow online cancellation, because they wanted to 'have a conversation' with the customer. I'm sure we can all imagine the nature of the conversation. There have been indications that credit card cancellation is designed to be difficult, so that a customer has to call up and be put through the hard sell. Choice, the consumer advocacy group, last year said:

It seems clear that the big banks' 'go slow' on card cancellations is about protecting revenue from interest and fees, with data showing the big banks slug consumers with an average annual fee of $146 compared to just $58 through a mutual or customer owned banks.

It is very easy to apply for credit cards online, but they're often much harder to cancel. This means that, if a customer sees a card that's a better deal, it's an effort to move over. Additionally, customers are ending up hanging on to old cards they didn't intend to keep, with access to more credit than they would have otherwise needed. Meanwhile, as long as customers have the old card, they can still be accruing fees. It's well past time that banks were required to allow online cancellation of credit cards.

We note that, under this bill, a bank may not be required to cancel a credit card where there is still a balance outstanding. We will watch this closely to make sure that this bill has an impact on helping customers get rid of unsuitable cards and switch to cards where they get a better deal. We note that this bill would also require banks to allow the reduction of credit card limits online; however, we note that the stakeholders have drawn attention to the fact that banks are not required to reduce credit limits below the minimum credit on the card. As the shadow Treasurer said in the other place, we'll watch closely to make sure that this bill does not have an effect such that banks merely increase the minimum limits on credit cards to circumvent this requirement.

With regard to schedules 1 and 2 and non-ADI lenders, schedules 1 and 2 of the bill will give APRA powers in relation to non-ADI lenders. The explanatory memorandum states that these powers are intended only to be used where there is a 'material risk' to the stability of the financial sector. According to the EM, it's not anticipated that these powers will need to be used in the immediate future, and they will be there to respond to potential future developments.

This bill also gives APRA the power to collect certain data from these lenders. ADI lenders, such as banks and credit unions, are subject to APRA's prudential requirements and ongoing supervision. These new powers for APRA are proposed in recognition of the fact that APRA has responsibilities in relation to the stability of the Australian financial system which are consistent with its core mandate of protecting depositors.

We note that some non-bank lenders have raised concerns about the scope of these powers. We recognise that non-ADI lenders can play an important role in ensuring competition against the banks, but we also believe that it is important that APRA is equipped with appropriate powers to safeguard the stability of the financial system. We note that, in response to concerns raised about the scope of powers in the exposure draft legislation, the application of these powers has been refined since the exposure draft stage of this bill.

Schedule 3 of the bill will allow smaller authorised deposit-taking institutions to use the word 'bank' in their business name should they choose to. Under this change, all ADIs can use the word 'bank' in their business name. Currently, APRA only permits ADIs with tier 1 capital exceeding $50 million to use the terms 'bank', 'banker' and 'banking'. There are a number of smaller ADIs who would benefit from the use of these terms. The Customer Owned Banking Association represents credit unions and building societies as well as mutual banks. We note that the Customer Owned Banking Association has also been supportive of this change.

Labor welcomes the fact that credit unions and building societies will have the option to call themselves banks if they choose to. As the EM points out, these changes will align community expectations in respect of the use of the term 'bank' with the fact that ADIs are prudentially supervised by APRA and deposits are covered by the Financial Claims Scheme guarantee. It's therefore appropriate that these ADIs can use this term, and Labor welcomes this change to the law.

While we welcome this bill, we note that, when debating bills like this, the government always seems to try to play down Labor's strong record on banks and consumer protections. This conveniently ignores landmark reforms by the previous Labor government like the National Consumer Credit Protection Act 2009. This was the first single-standard, nationally consistent regime for consumer credit regulation and oversight in this country—the first, by a Labor government in 2009. That act gave oversight to consumer credit, including home loans and credit cards, to a national regulator, ASIC, and it included what are proving to be very important responsible-lending obligations.

But what those opposite really want to write out of history is Labor's enactment of the Future of Financial Advice, otherwise known as FOFA, reforms. They want to write these out of history because the coalition's previous opposition to the FOFA laws now looks so embarrassing. The coalition voted against the FOFA laws in the House. They voted against the FOFA laws in the Senate. And, when they got into government, they tried to gut FOFA, first by legislation and then by regulation. Labor had to fight tooth and nail to protect the Future of Financial Advice legislation, and we were very lucky—and indeed the Australian people were very lucky—that we prevailed under this sustained and egregious attack.

Just to take one example, ASIC's Financial advice: fees for no service report revealed in October 2016 that the big four banks and AMP had spent years—years—taking fees from customers for financial advice, services that were never actually provided. ASIC found that there were great systems in place for recording incoming revenue, but there was very little in place to prove that the customers were actually getting anything in return. According to the latest numbers from ASIC, the number of customer accounts affected by that practice is over 300,000—300,000! The amount of fees improperly charged is over $200 million, excluding interest.

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