Thursday, 15 February 2018
Treasury Laws Amendment (Banking Measures No. 1) Bill 2017; Second Reading
I rise to sum up the debate on the Treasury Laws Amendment (Banking Measures No. 1) Bill 2017, and I thank all senators for their contribution to the debate. The bill enhances the stability, competitiveness and fairness of the financial system.
Schedule 1 to the bill provides the Australian Prudential Regulation Authority, which is known as APRA, a new power to make rules concerning the lending activities of non-bank lenders. This new power is a reserve power, which means that in ordinary times it will not be used. Schedule 2 reinforces APRA's ability to monitor the sector by strengthening APRA's existing data collection powers. Together, these reforms mean APRA will be able to make rules where it assesses that the lending activities of non-ADI lenders are materially contributing to risks of instability in the Australian financial system. While non-ADI lenders are currently a small share of the financial sector, APRA's macroprudential measures for ADI mean it is likely that the sector will grow and, potentially, contribute to risks. Risks to financial stability can be very costly. Risks, if realised, will ultimately fall on the broader Australian community. However, the government is of the view that non-ADI lenders are not currently materially contributing to financial stability risks, and therefore the government does not expect a rule to be made on day 1. Schedules 1 and 2 to the bill will add to APRA's tools on the shelf by expanding the powers APRA can use if and when risks to financial stability emerge in the non-ADI lending sector.
Schedule 3 of the bill removes the prohibition on the term 'bank' and allows all banking businesses with an ADI licence to benefit from this term. Currently, only ADIs with at least $50 million in capital are permitted to use the term 'bank'. This is a real problem for the innovative new banking entrants who want to enter the market. Customers need to understand the product you are offering before they come on board, and these entities need to onboard customers to grow. This is a real catch 22 for new bank entrants. They can't call themselves a bank before they hit $50 million in capital but they can't grow without being able to call themselves a bank. The limit on the use of the term 'bank' to entities over $50 million also creates a false perception in the community that the level of protection afforded to depositors in large APRA regulated institutions is greater than that of small regulated institutions. This is simply not the case. All depositors can take comfort in the fact that APRA regulates all ADIs and all depositors are protected under the Financial Claims Scheme, the government's deposit guarantee scheme.
In implementing this measure, the government has three objectives. It opens the door to innovative new entrants, it levels the playing field for existing ADIs and it meets the community expectation that the only entities that can use the term 'bank' are APRA regulated entities. In order to achieve the third objective, this measure alters the framework for the administrative review of decisions made by APRA concerning the use of the term 'bank'. Non-banks will no longer be able to challenge a decision by APRA to deny the use of the term 'bank' other than on the grounds of procedural fairness. This has the added benefit of reducing an administrative burden on APRA.
Schedule 4 of the bill seeks to modernise the Banking Act by inserting an objects provision, clarifying APRA's mandate under this act. This provides an opportunity for government to reinforce APRA's mandate to protect depositors and financial stability, whilst also promoting innovation. A reference is also incorporated to make it clear that APRA can take account of geographic and sectoral considerations where appropriate.
In addition, schedule 5 will prohibit credit card providers from making unsolicited credit limit increase invitations to consumers through any form of communication. This prohibition will cover all consumers, even if they have previously opted in to receive these invitations. Schedule 5 will also simplify how credit card interest can be calculated by prohibiting credit card providers from backdating interest charges or charging interest on a balance that has already been repaid. This reform will bring credit card interest in line with community expectation and reduce the complexity of the calculation of credit card interest. Finally, schedule 5 will require credit card providers to have online options for consumers to lower a credit limit or request to cancel a credit card. Consumers can face substantial barriers to cancelling a credit card or lowering a credit limit, which reduces competition and impedes the ability of consumers to manage their credit card debts. Schedule 5 will require credit card providers to facilitate a request and will prohibit providers from imposing unnecessary requirements on consumers.
These reforms will provide vital protections to vulnerable Australians and improve competition in the credit card market. I commend the bill to the Senate.
Question agreed to.
Bill read a second time.