Banking Review

Fairer, simpler what?

The Federal Government’s feeble attempt to seek so-called input
on consumer credit legislation has been met with derision

BY CHARIS PALMER

Australia’s major banks and mutuals have slammed the federal government over the consultation process and timeframe for consumer credit legislation amendments that will significantly change the way credit cards are marketed and managed.

The industry was given just two working days to respond to the Draft Consumer Credit Protection Amendment (Credit Cards and Home Loans) Bill.

In its submission to Treasury over the draft Bill, Westpac says it was “surprised and deeply disappointed” to see key aspects of the government’s policy had changed after initial consultation with the sector.

Likewise, the Australian Finance Conference has expressed disappointment at the consultation process and raised concerns over the ability of the industry to provide meaningful feedback in the timeframe provided.

Numerous questions remain over how retrospective the new legislation will be, as well as the timeframe it will be implemented in.

The industry is also confused and concerned that the operation of an over-limit “buffer” that currently falls between five and 15 per cent of a customer’s credit limit. Westpac says to operate effectively, this buffer would not be advertised to customers but remain at the discretion of the bank. The draft legislation proposes a “default buffer”, for which customers would be able to opt-out, specifying that it be the lesser of $500 or 10 per cent.

NAB has criticised this plan, arguing credit providers should be able to refuse the buffer. NAB has raised questions about how the buffer would operate, given no clarity has been provided on how credit providers can deal with customers who opt-in to it.

In its submission to Treasury, Westpac says: “The presence of the buffer in the legislation will have the effect of misleading consumers into believing they have an additional 10 per cent of their credit limit available if they choose, which is not and was never intended to be the case.”

Westpac has urged the government to proceed carefully, or risk seeing unintended consequences as a result of a rush to legislate.

Meanwhile, the Australian Bankers’ Association says many banks are at risk of non-compliance with the proposed legislation as a result of outstanding systems changes and upgrades driven by recent changes to consumer credit laws.

In its submission to Treasury, the ABA says, “A commencement date based on a short timeframe will only increase the regulatory burden and compliance costs faced by banks and other credit providers, and therefore the likelihood of non-compliance is increased”.

The ABA has also questioned the industry’s ability to charge fees to customers who spend over their credit card limit, with the proposed legislation seeking to stamp out fee charging for customers who have not opted in to do so.

“There is no carve out for customers who have opted-in to an over-limit service nor the ability of fees to be charged for customers who have elected against the buffer, (or) have gone over their credit limit,” the ABA says.

The ABA is also calling for the Bill provisions to relate to new credit contracts only, arguing clearer drafting is currently required in relation to transitional arrangements.

Mutual industry body Abacus has gone a step further in criticising the government, arguing there has been significant scope creep in its “Fairer, Simpler Banking” election commitments without any appreciable benefit to consumers.

“Our member ADIs are frustrated by repeated legislative interventions that purport to benefit consumers with little or no cost-benefit analysis,” Abacus senior manager of public affairs, Luke Lawler says. “Mutual ADIs will support better regulation of poor credit practices. We do not believe the current drafting of the Bill delivers on this aim.”

Abacus has labelled the Bill’s implementation timeframes “unrealistic”, and says lenders need at least 12 months to implement reforms.

“We are concerned that these objectives will be compromised by an unbalanced and rushed approach to this reform package,” Lawler says.

The Federal Government says it is planning further consultation on other aspects of its Fairer, Simpler Banking policy.