Monday, 22 February 2016
Competition and Consumer Amendment (Payment Surcharges) Bill 2015; Second Reading
Mr President, the Competition and Consumer Amendment (Payment Surcharges) Bill 2015 will be supported by the opposition. It is an important bill. It arises out of a recommendation of the Financial System Inquiry, commonly known as the Murray report, which recommended this action—that surcharging in relation to credit cards be closely regulated and that, in effect, overcharging not be allowed. This is an important matter because, frankly, consumers are being ripped off as we speak. It is interesting that of all the issues which were given attention during the Murray inquiry process, none received anywhere near as many submissions from the public as this particular matter. It is quite understandable that this was the case, because consumers have every right to be angry when they are ripped off in this fashion. I am pleased to note that consumer advocate, Choice, supports the bill in its current form. I also want to note—and I will touch on this in a bit more detail later—the role of and the work done by the Senate Economics References Committee on this issue of surcharging and credit card use.
It is right and appropriate that retailers be able to pass on the costs of using a credit card for transactions. They add up. It is a substantial cost. It is fair to say that nobody reasonable in the debate objects to retailers being able to pass on reasonable costs. That is appropriate and it is protected under this bill. What is not appropriate is excessive surcharging. In many cases, people have very little choice as to how they pay, but the costs are more than passed on and retailers make profits out of what is meant to be a user charge. When surcharging was first allowed for the cost of credit card transactions, it was envisaged by the Reserve Bank of Australia—which allowed this to occur—that it would be to recoup reasonable costs. As we speak today, the Reserve Bank estimates it will cost a merchant an average of 0.82 cents per transaction to accept the normal and most utilised cards, which are MasterCard and Visa. Of course, 0.82 is a low figure compared to what people charge in the vast majority of instances; charges of two per cent, three per cent or more are quite common.
This legislation is appropriate and will be strongly supported by the opposition. In fact, the shadow treasurer, Mr Bowen, indicated support for this action on behalf of the Labor Party when the Murray report was first released in 2014. Here we are in 2016 and we are only now legislating—if anything, it is perplexing that it has taken so long to reach this point. The Labor Party would have supported this legislation and facilitated this package much earlier than we are doing today.
We are relieved to say that this legislation and explanatory memorandum make much more sense than the Treasurer's explanation of it at the time. The Treasurer has had some very ordinary interviews in his so far brief tenure as Treasurer, but one was particularly special. He was asked on the Today show how this legislation would work. Karl Stefanovic asked him about a surcharge for a well-known airline, which might be able to charge you when taking credit card payments. The Treasurer responded, not confidently; indeed, he was very vague. It was quite clear he had no idea what he was talking about. He had no idea how this legislation would work. He had absolutely no idea of the detail. But the opposition has looked at the legislation and the explanatory memorandum, and thankfully we have found them to be much clearer. Clearly the government's legislative drafters have gone to work, and this is a good piece of legislation.
This bill is important not only as a matter of fairness but also because electronic payments are, of course, more and more a part of our economy and they are, by and large, efficient. There is no reason to discourage them; in fact, they can be and should be encouraged. Allowing the use of electronic payments through credit cards without excessive surcharging is good policy, as well as being fair. It is appropriate that the Australian Competition and Consumer Commission—the ACCC—be established as the body responsible for enforcing the legislation. The ACCC has experience and expertise in this field, and we would certainly endorse the mandating of the ACCC to ensure that this law is implemented as effective.
The legislation will clarify the regulation and enhance competitive neutrality between systems providers. At the moment there is a process of blending, which is charging one surcharge regardless of the credit card used—although some credit cards have considerably more costs. This has caused some angst to some credit card providers, for understandable reasons. For example, American Express is generally more expensive for a merchant. That is a matter of choice. If there is a higher charge to use an American Express card, customers of Visa and MasterCard, should not be penalised for doing so. It should be the case that the blending process is, in effect, unfair and is, in effect, a surcharge. Of course, the charge which dominates is the higher charge. For example, a charge for American Express would dominate the blending process and people using Visa or MasterCard would be charged more than they otherwise should be.
It will of course also improve the efficiency and effectiveness of price signals—that is, it would encourage credit card providers to even more increased efficiency and drive down their processing costs. It will make their product more attractive to consumers if consumers know that they are only going to be charged for the cost, and the cost to the credit card becomes more relevant. At the moment it is frankly irrelevant because the consumer is going to be charged more than that in any event. It has the potential to reduce cross-subsidisation, as was outlined, between customer groups and merchant groups through that blending process.
The bill amends the act not only to include a ban on surcharging but also to allow the ACCC to take actions against corporations that are involved in excessive surcharging. As I said, that is something the opposition supports. The surcharge will be excessive if that surcharge exceeds the level for surcharging permitted under the Reserve Bank standard, which covers the kind of payment and sets out the regulations. The Reserve Bank has considerable expertise that it has built up since having responsibility for payment systems through the Payments System Board and it is appropriate that the Reserve Bank has that authority under this bill.
The opposition trusts that some sensible definitions of what is to be considered excessive will be created as part of the process in this bill. I support the bill on the basis that those definitions will not inhibit competition between retailers on surcharge levies, because that again is something which would provide competition to encourage not only credit card providers but also retailers to make sure that their offering is as sharp as possible and that only the relevant charges are being passed on, and consumers, at the end of the day, will benefit. This is a pro-consumer piece of legislation, it is a pro-competition piece of legislation and it is a sensible piece of legislation. The Labor Party will facilitate its passage through the Senate, as we did in the other place, so that it becomes the law as quickly as possible. It is disappointing it has taken this long to get it to this point. It is something which could have been dealt with very easily last year. Obviously, the government had other things on its agenda, but, nevertheless, now that it is before the Senate we will facilitate its passage with our support.
I also want to touch on the work that has been done in this area by the Senate Economics References Committee, and more recently a report that was done on the issue of credit cards. This piece of legislation is important and it deserves to be supported, but it addresses only one issue; it does not address some of the other fundamental issues regarding credit cards and credit competition within the credit card market. While this goes a step in the right direction in addressing some of the issues that deserve to be addressed, there is a whole series of other issues relating to credit card competition, relating to the market, relating to making sure you have a competitive environment, relating to internal and hidden payments that also exist, which I believe the Senate Economics References Committee has done an exceedingly large amount of work on. In the committee's report that came down last year there was a series of other practical, sensible measures.
I think consumers have a right to be very angry and frustrated when they see credit card interest rates as high as 20 per cent while the cash rate has fallen to around two per cent. I think a lot of consumers feel that they are getting a raw deal—and they are. Some of that can easily be overcome by shopping around; by looking for a better deal. There are deals out there where people can get credit card deals at eight or nine per cent, but what we tend to find is that they are not the ones being advertised, and that people are being drawn in with offers of 20 per cent, not realising that a lot of this is a trap.
On top of that, there is the whole complicated area of credit card debt limit transfers which allow people to completely move their the transfers over to another credit card provider. While on the face of it this all seems like a very positive development, unfortunately it ends up meaning that, for example, someone will have $10,000 of credit card debt, they will take their credit card over to another supplier, and they will have that account cleared—but rather than being forced to actually close it, what ends up happening is that that they have another limit of $10,000, and it just builds up again. On top of that, the difficulty and the challenges with closing credit card accounts and cancelling credit cards is at odds with how easy it is to actually obtain them. There is not a single major credit card provider in this country that will allow you to cancel your credit card online. You have to phone up, you have to go in, or you have to do it all via written letters—and yet you can actually apply for and get a full credit card online. These are simple, practical steps.
The Senate Economics Committee tried to take the politics out of the issue and find half a dozen examples of some fairly simple, practical reforms could be done to improve credit card use without really affecting competition—or while enhancing competition. That being said, this proposal from the government which comes from the Murray report is a step in the right direction. I believe there are other practical steps that can also be taken.
I rise to speak on the Competition and Consumer Amendment (Payment Surcharges) Bill 2015 on behalf of the Greens. The Greens have long been campaigning about and pointing to the exorbitant amounts being made by banks and credit card companies when people do little more than use their own money, often in situations where they have no choice other than to use a card or have their transaction processed electronically. The kind of reform that we are seeing today has come through the Financial System Inquiry. A large number of submissions were made to the Murray inquiry that this overcharging—unnecessary overcharging, with no justification—be reformed. It is especially important in light of the fact that, in the future, it is very likely that we will face a cashless economy, and so these kinds of electronic transactions and how they are priced—and whether those transactions are priced fairly—in terms of the cost of the provision of these services, need to be taken into account. We welcome the legislation before us today. The Greens will be supporting this bill.
However, we do not believe that this bill goes far enough. The Greens have always campaigned for fees at automatic teller machines to be regulated also, given that the cost of provision of those machines allows the banks to make significant profits. There is some evidence that this is perhaps less true for some of the private ATM providers but, certainly in the case of the big banks, the evidence before us suggests that the banks make significant profits on the use of ATM machines, especially from customers who use other banks' machines and infrastructure that is in place. If we are going to put caps on surcharges on credit cards, why aren't we doing it when those same credit cards are put in an ATM machine to withdraw money or, in some cases, even to get an account balance? The Greens would point to Reserve Bank figures that, on average, it costs the bank 77 cents when you put your card into an ATM, and that fee covers the transaction. The same applies when you request your account balance, or get money out and have it processed. But the people we know from personal experience are being charged two dollars, $2.50, and sometimes three dollars for the privilege of accessing their own money. These fees are not only unfair, but regressive, because they hit people who are taking out smaller amounts or who have smaller balances.
I remember speaking to my students when I was teaching finance at university and I gave them an example. I asked them, 'What is the average amount of money you take out of an ATM?' It varied, but some of them would take out as much as $20—every time they went to the ATM, they would take out $20. I said to them: 'Let's have a look at the real fee that you are paying on $20. If it is a $2 fee and you are getting out $20, you have paid a 10 per cent fee to access your money.' My conclusion was that you are better off taking out a large amount of cash, if you have to do it—and to spend that wisely—but that every time you go to the machine it is going to cost you up to 10 per cent, depending on how much money take out. It is quite a ridiculous situation to be in, especially if you do not have much money in the bank and you are still getting slugged the same fee as other people who have much larger cash balances.
To give you another example, $2.50 means a lot more to someone with $50 in their account than to someone who might be able to access $1,000 in their account. We know that many have changed their behaviour and try to withdraw cash from their own ATMs as much as possible, but, as many of us know, there are times when this is just not possible. For example, when you need cash, there are many times when you have to go as close as possible and use whatever ATM is available, and, of course, in rural and regional areas you have much less chance of finding the ATM for your own bank.
The Greens believe that banks should not be able to make huge profits out of their ATMs. If you are going to another bank or to your own bank, maybe the bank can charge you the cost of recovering that—that is fair enough. That is actually what we are seeing in this legislation anyway, for other credit card payments. There is a stipulation there that they can cover the costs of provision of these services without gouging profits. The committee has heard some really stark evidence of some of that overcharging in relation to this legislation. In the case of banks, why not have the same principle apply—that we have a fair fee to cover the provision of that service which does not allow the large financial services companies to gouge profits from the Australian people. There is no reason for that with credit cards; there is no reason this should be any different.
In terms of the profits that the banks make, let's be honest: the bank business model in recent years, especially in the last decade, has moved toward making profits from fees rather than from the net margins they make on their deposits and loans. Credit cards are significant contributors, contributing profits in the billions of dollars to these banks. That is money that is coming out of the pockets of people who use the infrastructure to access their money, which the banks are holding for them.
It is worth remembering that the big four banks alone make up to $30 billion profit every year. Some of this is coming from us from paying our $2, $2.50 or $3 when accessing an ATM. Remember, it is a fee that the Reserve Bank itself says cost the banks about 77 cents. Also, according to the RBA, there are now more than 31,000 cash machines around the country, which the RBA says is high, relative to Australia's population, when you look overseas. Fifty-five per cent of the ATMs in Australia are owned by specialist ATM companies—this is some of the evidence that the economics committee received—they are the ones you find in a restaurant or a pub or somewhere else. Banks and other financial institutions own the rest; in other words, they own just under half of the ATMs around the country.
While it may be difficult, we accept, to limit fees that private operators are charging, we can take some steps towards regulating what the banks charge. The banks enjoy significant support from the Australian public, especially the big four, because we know they are too big to fail and the government will step in to help them if they ever get into trouble—the lessons of the GFC were very clear. Perhaps it was much more stark in the US, but we know that your government, Mr Acting Deputy President, stepped in to guarantee deposits, which, in hindsight, was a very important thing to have done, given the potential for contagion and other issues, when financial markets are collapsing. The wholesale funding advantage of that levy—and there has been no levy forthcoming to recover that for the Australian people—is still a problem for my party. We would still like to see the advantage that the big banks have received from the deposit guarantee levy paid back to the Australian people, but that is a matter for another day.
Given the support that the banks receive from the government, these are the kinds of reforms we would also like to see with this legislation. When we get to the committee stage I will be moving amendments that would prevent banks charging ATM fees that are excessive—and the definition of the word 'excessive' here is the same definition we would apply to what is currently in the bill in relation to credit card surcharges—and require the fees to reflect the reasonable cost of allowing a person to make an ATM transaction.
For the benefit of the Senate I will outline some of the amendments now. The amendments would create a new part of the act, Part 4D—ATM transactions, and a new section, around section 55N, which sets out the object of the part. The object of the part is to ensure that account holders are not charged for ATM transactions made using automatic teller machines owned or leased by the persons with whom their accounts are held, and that amounts charged for other ATM transactions are not excessive and reflect the reasonable costs of allowing a person to make an ATM transaction.
It did surprise me that some banks actually charge their own customers to access ATM machines. Bendigo and Adelaide Bank's unique policy of charging its own customers to withdraw cash has faced a consumer backlash. You have to ask yourself: when one or two banks move in this direction, where they are charging their own customers to access ATM machines, how long will it be until the other banks do this as well? We know that these are significant profit sources for the banks. If a couple of banks do it, it is very likely that other banks will follow suit and start charging some kind of fee with which they can gouge customers and make profits for their shareholders.
In a nutshell, the Australian Greens support this bill because it says credit card fees should not be in place where intermediaries or the end-users are able to make a profit out of you for simply using your credit card. This will be a much bigger issue in the future as we move to a cashless economy. It is fair enough that banks and other financial service providers should charge a fee to cover the provision of their services—otherwise they would be making losses on things such as ATM machines and networks—but excessive profits: no way. I think I speak on behalf of most Australians when I say I would like to see ATM fees in line with the cost of service provision and not see banks gouging the Australian public for using a machine that simply allows them access to their own money.
We feel this bill is a good start. It has been supported by stakeholders such as Choice, which of course is important given that Choice speaks on behalf of many consumers in this country, but let's extend it to ATM fees and make sure that banks, which every year make record profits, are not able to make a profit out of you accessing your own money. Let's end these fees of $2, $2.50 and $3 that banks sometimes charge. Let's limit them to what it actually costs the bank, which we know is closer to 77c. Let's ensure that the good principle in this bill is extended and that banks are prohibited from using, as a way of making money out of people, the fact that in this day and age everyone is required to have an electronic bank account. We support the bill, and I hope that the government, because they support the principle of this bill, will also support extending it to ATM machines. I look forward to hearing from the minister in committee as to why that would or would not be the case and I will recommend our amendments to the Senate when we get to the committee stage.
I thank senators for their contributions to this debate and the wide-ranging support that the bill has. In particular I extend the thanks of the Minister for Finance in that regard.
More and more consumers in Australia are using credit cards to pay for their purchases, whether online or in retail stores. There are many benefits to the use of cards for both consumers and businesses who accept payment by card. While both sides enjoy benefits, there are costs associated with card use, and it is important that these be fairly distributed.
If merchants use cost-recovery as a cover for squeezing higher profits from consumers who choose to pay by card, that is simply unfair and that is what we attempted to address through this legislation. Currently the only restrictions on merchants' surcharging come from the rules of card schemes. These usually allow the merchant to recover its reasonable cost of card acceptance. This includes, but is not limited to, the merchant service fee that the merchant pays to its financial institution.
Most merchants, it should be noted, act fairly by choosing either not to surcharge at all or to limit surcharging to the recovery of their genuine costs. However, this is not always the case. Excessive surcharges, at times up to 10 per cent or more, sometimes occur. This has generated substantial angst in the community. Misleading consumers on the true cost of payments erodes the efficiency of and confidence in our payment system. Today, this government is responding to the significant community concern about excessive surcharging, and I welcome the fact that the Senate looks like supporting those measures.
Under this new framework, excessive surcharging by merchants, where the cost added on is above the merchant's cost of accepting the payment, will be banned. This will not stop merchants from recovering their own costs of accepting cards. Fair and reasonable surcharges help to send a price signal to the community about the real cost of payments. Profiteering by merchants, however, under the guise of cost recovery will not be allowed. Given the large volume of card payments made—up to $45 billion each and every month—this measure will likely provide considerable savings to everyday Australians. To ensure that merchants react promptly to these changes, the Australian Competition and Consumer Commission, as the enforcement agency, will be given powers, including powers to issue infringement notices to merchants who continue to do the wrong thing by consumers. Penalties of up to $108,000 for each offence by listed companies will incentivise merchants to do the right thing—that is, to do the fair thing by consumers.
This demonstrates our government's commitment to addressing consumer concerns. The amendments contained in this bill will improve transparency for consumers and facilitate improved price signals about the real cost of payments. This, backed up by the Australian Competition and Consumer Commission being on the beat, should drastically reduce the chance that merchants will seek to surcharge excessively and profiteer from ordinary Australians.
On behalf of the government I thank all those who have had input into the development of these reforms. I note in particular the statement by Senator Dastyari that this is a good piece of legislation. I welcome that. I acknowledge the support of others and the input of many others into this legislation, which is an important consumer reform. In the committee stage, I am sure we will touch upon and I will respond to Senator Whish-Wilson's amendments. I commend the bill to the Senate.