Wednesday, 22 June 2011
Regulations and Determinations
National Consumer Credit Protection Amendment Regulations 2011 (No. 2), National Consumer Credit Protection Amendment Regulations 2011 (No. 3); Disallowance
I, and also on behalf of Senators Xenophon and Williams, move:
(a) the National Consumer Credit Protection Amendment Regulations 2011 (No. 2), as contained in Select Legislative Instrument 2011 No. 40 and made under the National Consumer Credit Protection Act 2009; and
(b) the National Consumer Credit Protection Amendment Regulations 2011 (No. 3), as contained in Select Legislative Instrument 2011 No. 67 and made under the National Consumer Credit Protection Act 2009, be disallowed. [F2011L00465 and F2011L00764]
Thirteen sitting days remain, including today, to resolve the motion or the instruments will be deemed to have been disallowed.
The Gillard government through its actions has made it harder for smaller lenders to compete with the big banks. To ensure the lowest possible banking fees and bank interest rates overall, we need robust competition between all lenders. Instead of strengthening and enhancing competition, the Gillard government has reduced and weakened competition. The market share of smaller lenders has collapsed under this government. That reduced competition is not good for consumers and not good for small business.
The coalition welcomes the fact that many lenders are now offering mortgage products with no exit fees, where consumers can choose from that mix of features that best suits their circumstances. It may well be that a consumer prefers to go for the lower interest rate with an exit fee rather than the higher interest rate without an exit fee.
We recommend to the Senate that it pass this disallowance motion that has been put forward by the coalition and Senator Xenophon today. It will force the government back to the drawing board. It will force the government to think through the implications of what it did in imposing a blanket ban on exit fees. Yes, it may sound counterintuitive, but the government's actions have lessened competition by making it harder for the smaller lenders to compete with the big banks. The government's actions have further strengthened the already dominant position of the big four banks. This is not in our national interest and it is most certainly not in the best interests of consumers and small businesses across Australia. We commend this motion to the Senate.
The Economics Committee had an inquiry about competition in banking. They had a look at this issue of exit fees. On the advice of many people and many consumer groups, the committee decided that exit fees were not a good idea because there is no point in creating competition within banks if people cannot then decide to shift between accounts. It is critical that people be able to shift.
We have a situation where the big banks have somewhere between 75 per cent and 80 per cent of mortgage accounts. So clearly they have an advantage. But if you want to give an advantage to smaller banks you do it in other ways, and the government has already put those measures in place. You do it in other ways so that those banks get a lower cost of funds. You do not stop competition. You do not stop customers being able to switch between banks.
Time and time again we had examples of customers who were unable to switch because of exit fees. Senator Williams, for example, used that example himself. What you are doing is closing off the ability of customers to switch if they get a better deal if they are not within the banks. Okay, big banks might have 75 per cent to 80 per cent, but that means that one in four customers will not be able to switch—and that is a dumb policy!
The high exit fees charged by lenders essentially trap customers and restrict them from switching to more competitive loans. This is hardly in the best interests of borrowers and is not good for competition in the long term. Also, we should not be discouraging efficient practices and competitive behaviour; we should be encouraging it. Allowing exit fees to continue to be charged by lenders only provides an incentive for this uncompetitive behaviour to continue. Therefore, I will not be supporting the disallowance motion.
I co-sponsor this motion. I support it and I believe it is the right thing to do because of the unintended consequences of having an across-the-board ban on exit fees. They should only be applied on the big banks as a matter of course. The right thing to do is to have tougher legislation, which I have introduced, that relates to unreasonable fees and shows mutuality between those fees and the costs of those charges.
Let us put this in perspective: $33 million in exit fees compared to $11 billion in bank charges and fees. There is a better way of doing this. I do not want to see the unintended consequences of the impact on small lenders that we saw with the bank guarantee legislation as a result of the GFC—a good idea badly implemented. You made the banks bigger and you have marginalised the smaller lenders. That is why I am very pleased to be associated with this motion.
That the motion (Senators Cormann, Xenophon and Williams's) be agreed to.
The Senate divided. [16:03]
(The President—Senator Hogg)