• create new definitions to clarify the application of provisions relating to non-ADI lenders

• give APRA the ability to make rules relating to the lending activities of non-ADI lenders when it considers that the provision of finance by non-ADI lenders materially contributes to the risks of instability in the Australian financial system and

• give APRA the power to issue directions to seek compliance with non-ADI lender rules

• Schedule 2 provides for consequential amendments to the FSCODA in relation to non-ADI lenders
• Schedule 3 amends the Banking Act to remove restrictions on the use of the term ‘bank’ to allow all ADIs to use the term ‘bank’, ‘banker’ or ‘banking’ in relation to the ADI’s financial business
• Schedule 4 inserts an objects provision in the Banking Act to outline the high level objectives and amends those in the Insurance Act and the Life Insurance Act and
• Schedule 5 to the Bill amends the Credit Act and the Credit (Transitional and Consequential Provisions) Act to introduce a number of reforms to improve consumer outcomes under credit card contracts.

Given the diverse nature of the provisions within each Schedule, the Bills Digest examines each Schedule in turn.

Committee consideration

Senate Standing Committee for Selection of Bills

In its meeting on 15 November 2017, the Senate Selection of Bills Committee recommended that the Bill not be referred to committee for inquiry and report.[1]

Senate Standing Committee for the Scrutiny of Bills

The Senate Standing Committee for the Scrutiny of Bills (the Scrutiny Committee) raised two main concerns in relation to Schedule 1 to the Bill.[2] Further details are given below under consideration of Schedules 1 and 2.

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Schedules’ compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Schedules are compatible.[3]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights considered that the Bill did not raise human rights concerns either, because the Bill does not engage or promotes human rights, and/or permissibly limits human rights).[4]

Promoting financial stability

Background

Under the Banking Act, a body corporate that wishes to carry on banking business in Australia may only do so if APRA has granted it an authority for the purpose of carrying on that business. Once authorised by APRA, the body corporate is an ADI and is subject to APRA’s prudential requirements and supervision.

There are other entities that engage in lending activities (including Registered Financial Corporations (RFCs), wholesale funders and managed investment funds) but do not take deposits and hence are excluded or exempted from the definition of banking business. These are non-ADI lenders.

The RBA identifies three main types of non-ADI financial institutions:

• money market corporations which operate primarily in wholesale markets, borrowing from and lending to, large corporations and government agencies
• finance companies, including general financiers and pastoral finance companies which provide loans to households and small to medium-sized businesses and
• securitisers which issue securities backed by pools of assets.[5]

Non-ADI lenders are primarily regulated by the Australian Securities and Investments Commission (ASIC) with regard to conduct, disclosure and accountability. ASIC does not have a financial stability mandate.[6] Some RFCs are required to register with APRA under FSCODA and report data to APRA in certain circumstances. Although APRA has a financial stability mandate, it has no supervisory role with respect to non-ADI lenders.[7]

The Financial Stability Board (FSB) defines non-ADI lending (known as shadow bank lending) as ‘credit intermediation involving entities and activities (fully or partially) outside the regular banking system’.[8] It can play an important role in supporting economic activity by broadening access to credit for parts of the economy that have difficulties accessing bank loans. However, less regulatory oversight can lead shadow banks to adopt riskier business models, potentially posing threats to the stability of the financial system (particularly if the additional credit amplifies or propagates pre-existing financial system vulnerabilities).[9] Data constraints are currently a challenge in monitoring the size and growth of the shadow banking sector, and in assessing its impact on financial stability.[10]

Policy options

The Government announced in the 2017–18 Budget that it would provide APRA with new powers in respect of the provision of credit by non-ADI lenders, enabling it to respond to financial market developments that pose a risk to financial stability.[11] The Government also announced that it would enable APRA to collect data from these entities for the purposes of monitoring the non-ADI lending market.

The Government examined three possible policy options:

• Option 1—provide APRA with monitoring and rulemaking powers
• Option 2—maintain the status quo or
• Option 3—require non-ADI lenders to be authorised by APRA.

Option 2 was rejected on the grounds that it would not address the policy problem.[12] Option 3 would result in a disproportionate increase in regulation, impose significant costs on non-ADI lenders and would materially change the nature of APRA’s regulated population.

In line with Option 1, Schedules 1 and 2 to the Bill are designed to ‘promote financial stability through strengthening APRA’s ability to respond to developments in non-ADI lending that pose a risk to financial stability’.[13]

APRA’s role

Under subsection 8(2) of the Australian Prudential Regulation Authority Act 1998, in performing and exercising its functions and powers, APRA is required to:

... balance the objectives of financial safety and efficiency, competition, contestability and competitive neutrality and, in balancing these objectives ... to promote financial system stability in Australia.

As part of its role, APRA makes prudential standards under the Banking Act which are to be complied with by all relevant regulated entities.[14] The prudential standards reflect the requirement that APRA is expected to have regard to the stability of the Australian financial system.[15] However, APRA does not currently have ‘the ability to manage material financial stability risks that might arise from the lending activities of entities that are not ADIs’.[16]

Non-ADI lending

Schedule 1 of the Bill inserts proposed Part IIB into the Banking Act to give APRA a new rule-making power (relating to the provision of finance) which applies to non-ADI lenders, where APRA has identified material risks of instability as a consequence of their lending activities.

The current size of the non-ADI lending sector is such that there is no material risk to the stability of the financial system posed by its activities: according to the October 2017 Financial Stability Review, total assets of non-ADI lenders are around $500 billion or seven per cent of total financial system assets (down from 15 per cent in 2007).[17] This share is small by international standards.[18]

The Explanatory Memorandum states:

[t]he intention behind these amendments is to provide appropriate tools for APRA to deploy should the size of the sector change, or lending practices within the sector become a cause for concern when viewed through the lens of risk to the stability of the Australian financial system.[19]

APRA will also be provided with the power to issue directions to a non-ADI lender, in the case that it has contravened, or is likely to contravene, a non-ADI lender rule. Appropriate directions powers and penalties will be introduced for a non-ADI lender that does, or fails to do, an act that results in the contravention of a direction from APRA.

Registration of non-ADIs

Schedule 2 provides consequential amendments to the FSCODA. The objects of that Act are, amongst other things, to enable APRA to collect information which assists APRA to perform its functions or exercise its powers and enables APRA to publish information given by financial sector entities.[20]

In order to provide information to enable APRA to make decisions on non-ADI lenders, the amendments widen the definition of registrable corporation to allow APRA to collect data from entities which engage in material lending activity (irrespective of whether or not it is their primary business). Lenders with less than $50 million in loans, or that lend less than $50 million in any one financial year, will be exempt.

As at June 2017, there were nine money market corporations (total assets $31.3 billion) and 112 finance companies (total assets $140.6 billion) with assets above $50 million.[21] As at end September 2017, total assets of Australian securitisers were $125.2 billion.[22]

This increased oversight is consistent with the findings of a 2017 report by the FSB which assessed the risks posed by shadow banking activities and the adequacy of tools designed to address financial stability concerns.[23] It noted agreement among FSB member authorities to:

... establishing a systematic process for assessing financial stability risks from shadow banking, and ensuring that any entities or activities that could pose material financial stability risks are brought within the regulatory perimeter...

... strengthen[ing] the monitoring of shadow banking activity and the data collection framework.[24]

According to the Explanatory Memorandum, evaluation of the policy will occur through three main channels:

• assessment by APRA and the Council of Financial Regulators[25]
• feedback from non-ADI lenders and
• through Parliamentary processes (in the case of legislative instruments).

APRA will have the power to correct issues with registration, to determine the need for and make rules, and to assess a rule’s effectiveness in reducing risks to financial stability. Industry feedback during the registration process ‘will be valuable in determining its success’; industry feedback during and post data collection will help to determine whether the process ‘adequately minimises regulatory costs for stakeholders’.[26]

Policy position of non-government parties/independents

At the time of writing this Bills Digest, none of the non-government parties or independents had publicly commented on the Bill.

Position of major interest groups

Twenty two submissions were received to Treasury’s 2017 consultation entitled New APRA powers to address financial stability risks – non-ADI lender rules. Most submissions supported Option 2 (maintaining the status quo).

As noted in the Explanatory Memorandum:

[t]he majority of public submissions generally supported the data collection component of the measure, but raised concerns with the nature of the rulemaking and directions powers to be given to APRA.[27]

By way of example, the Australian Finance Industry Association had serious concerns with the draft of the Bill, ‘in terms of practicality, cost and sovereign risk’:

[t]he rule-making power should be properly reserved to a market/product segment once it had been agreed ... as likely to cause financial system instability with clearly enunciated rationale and metrics.

... [t]o ensure participants that represent a risk to financial stability and are likely to be resourced to bear systems and compliance-build costs for data provision the more appropriate threshold should be $100m.[28]

The Australian Securitisation Forum (ASF) also raised concerns about the additional costs arising from new reporting requirements under the FSCODA.[29] It noted that the proposed legislation could deter investment in the non-ADI sector, and suggested a transitional period during which all necessary data is provided to APRA and APRA consults with non-ADI lenders. APRA would then not make any rules until after the expiry of the transitional period. Guidelines could be issued to non-ADI lenders, providing a level of certainty to the industry while preserving APRA’s powers to make rules. The ASF questioned the lack of guidance on ‘material contribution to the risks of instability in the Australian financial system’ and argued for specific rule-making and enforcement powers. In particular, it highlighted the importance of taking into account non-ADI lender existing commitments when APRA gives directions.

Columbus Capital (a non-bank financial institution) raised concerns about the speed at which implementation is proposed, emphasising that one significant unintended consequence of the legislative changes could be to reduce the attractiveness to debt investors of securitisation securities sponsored by non-ADI lenders.[30] Submissions by King & Wood Mallesons, and the Mortgage and Finance Association of Australia highlighted that the potential for APRA to use its powers will create uncertainty for non-ADI lenders, adversely affecting the cost and availability of funding.[31] And, although APRA is required to consult with ASIC before making, varying or revoking a non-ADI lender rule (although there is no penalty for not doing so), the legislation gives ASIC no power to prevent APRA from imposing previously unforeseen rules on the non-ADI sector, thereby creating significant uncertainty.[32]

FinTech Australia argued that APRA’s rule-making power should be strictly limited to non-ADI mortgage lenders, which are the primary regulatory driver of the proposed amendments; and that the threshold for data collection and reporting (limited to segments, entities and transactions with the potential to impact financial system stability) should be raised to $100 million.[33]

Despite these apparent concerns, the Government rejected the option to maintain the status quo:

[a]s non-ADI lenders would be unlikely to comply with a request made by APRA, there is little chance that the extreme negative affects posed by allowing risk to financial instability (a financial crisis) could be avoided, should these risks arise.[34]

Financial implications

The Explanatory Memorandum identifies increased resourcing for APRA of $2.6 million over four years (as announced in the 2017–18 Budget), commencing in 2017–18.[35] An increase in the Financial Institutions Supervisory Levies, over three years from 2018–19, is expected to contribute $1.9 million of this.[36] Total average annual regulatory costs for businesses are estimated to be $1.2 million (reflecting a one-off administrative cost incurred in registering with APRA).

Non-ADI lenders may incur regulatory costs where they comply with a non-ADI lender rule issued by APRA. The Explanatory Memorandum notes that these costs will only be incurred after APRA issues a rule which would follow after standard Regulation Impact Statement (RIS) practices, including consultation with industry. A RIS-like procedure would also be required before APRA could impose any Reporting Standard on non-ADI lenders.

Schedule 1—key issues and provisions

Item 2 of Schedule 1 to the Bill inserts proposed Part IIB—Provisions relating to the non-ADI lenders into the Banking Act.

Within the new Part IIB, proposed section 38C of the Banking Act empowers APRA to make non-ADI lender rules. The rule-making powers include the ability to impose different requirements to be complied with by all, or a specified class of, or by one or more specified non-ADI lenders.[37] In addition, APRA may in writing, vary or revoke any non-ADI lender rule.[38]

The non-ADI lender rules may authorise APRA to exercise powers and discretions including the discretion to approve, impose, adjust or exclude specific requirements in relation to one or more specified non-ADI lenders.[39]

Proposed subsection 38C(7) of the Banking Act states that a non-ADI lender rule may apply, adopt or incorporate, with or without modification, any matter contained in an instrument (or other writing) ‘as in force or existing from time to time’.

A non-ADI lender rule will be automatically revoked after two years from the date the rule is made, unless during that period APRA considers the provision of finance by one or more non-ADI lenders to be contributing to instability in the Australian financial system. In that case the period can be extended (or further extended) for a period of two years.[40] Part VI of the Banking Act, which provides for the reconsideration and review of decisions, applies to a decision to extend the period.[41]

Although APRA is required to consult with ASIC before making, varying or revoking a non-ADI lender rule,[42] a failure to comply with this ‘does not affect the validity of the action concerned’.[43]

Where non-ADI lender rules apply to a class or classes of non-ADI lenders (rather than to specific non-ADI lenders), the rules will be legislative instruments.[44] The Legislation Act 2003 requires a legislative instrument to be tabled in each House within six sitting days following registration on the Federal Register of Legislation. A legislative instrument can be subject to disallowance if either a Senator or Member of the House of Representatives moves a motion of disallowance within 15 sitting days of the day that the legislative instrument is tabled.

Part VI of the Banking Act (Reconsideration and review of decisions) will apply to decisions made by APRA in relation to individual non-ADI lenders (similar to the provision for ADI lenders).[45]

Proposed section 38K of the Banking Act empowers APRA to give a body corporate that is a non-ADI lender a direction to take action to comply with the whole or a part of a non-ADI lender rule if APRA has reason to believe that the body corporate has contravened (or is likely to contravene) a non-ADI lender rule.[46] A non-ADI lender commits an offence if it does, or fails to do, an act and doing or failing to do that act results in the contravention of such a direction. The penalty is 50 penalty units, being equivalent to $10,500.[47] Importantly, the non-ADI lender commits the offence on the first day that the offence is committed and on each subsequent day that the circumstances giving rise to the offence continue.[48]

Scrutiny Committee comments

The Scrutiny Committee raised two main concerns in relation to Schedule 1 to the Bill.[49]

First, proposed subsection 38C(7) of the Banking Act states that a non-ADI lender rule may apply, adopt or incorporate any matter contained in an instrument (or other writing) ‘as in force or existing from time to time’.

The Scrutiny Committee drew attention to this provision commenting that provisions in a Bill which allow the incorporation of legislative provisions by reference to other documents:

• raise the prospect of changes being made to the law in the absence of Parliamentary scrutiny
• can create uncertainty in the law and
• mean that those obliged to obey the law may have inadequate access to its terms.[50]

That being the case, the Scrutiny Committee requested advice from the Treasurer as to the types of documents envisaged under proposed subsection 38C(7), whether these documents would be made feely available and why it is necessary to apply the documents as in force or existing from time to time (rather than when the instrument is first made).

In his response, the Treasurer argued that ‘the ability for APRA to incorporate extrinsic material into a non-ADI lender rule is essential to ensuring the effectiveness of the rules and minimising their associated compliance burden’.[51] This would enable APRA to refer to concepts that are already defined in existing commercial standards, such as Prudential Practice Guides or Australian Bureau of Statistics (ABS) documents. The Treasurer argued that all those likely to be interested in non-ADI lender rules would be familiar with the entities responsible for such material and that the relevant documents are freely available on the internet. He also noted that the proposed rules are legislative instruments which are time-intensive to make and commence. Referring to extrinsic material would allow rules to be more responsive to market changes.

Second, proposed subsection 38F(4) of the Banking Act states that ‘before making a non-ADI lender rule, or varying or revoking a non-ADI lender rule, APRA must consult with ASIC’. However, proposed subsection 38F(5) of the Banking Act states that failure to comply with this obligation does not invalidate the non-ADI lender rule. The Scrutiny Committee requested advice from the Treasurer as to the rationale for including a no-invalidity clause in the provision.

The Treasurer provided three reasons for the no-invalidity clause:

• it reflects Parliament’s intention to vest the jurisdiction to make, vary or revoke non-ADI lender rules exclusively with APRA
• it acknowledges the safeguards against the arbitrary use of non-ADI lender rules reflecting the availability of avenues of review (under the Administrative Decisions (Judicial Review) Act 1977) and the potential for Parliamentary scrutiny of legislative instruments (as applied to non-ADI lenders or class of non-ADI lenders) and
• it recognises that the desirability of consultation with ASIC may be outweighed by any public inconvenience that would arise if a failure to consult deprived the making, varying or revoking of a non-ADI lender rule of legal validity.[52]

Schedule 2—key issues and provisions

Schedule 2 to the Bill provides consequential amendments to the FSCODA to ensure that it applies to non-ADI lenders. The amendments update the definition of a registrable corporation to include non-ADI lenders. This will enable the collection of information relevant to the exercise of APRA’s new powers under Part IIB of the Banking Act.

Currently section 7 of the FSCODA sets out what is, and what is not, a registrable corporation.

Determination—what is a registrable corporation

Item 2 of Schedule 2 amends subsection 7(1) of the FSCODA so that a corporation is a registrable corporation if the following criteria are satisfied:

• the corporation is a foreign corporation, a trading corporation formed within the limits of Australia or a financial corporation and
• either the corporation engages in the provision of finance in the course of carrying on a business in Australia
• or it is specified in a determination under proposed subsection 7(1A) of the FSCODA or is in a class of corporations specified under that subsection.

Importantly, the existing reference to ‘carrying out the activity of borrowing money’ has been removed to leave only a reference to engaging in the provision of finance.[53]

Item 3 of Schedule 2 to the Bill inserts proposed subsection 7(1A) of the FSCODA to empower APRA to make two types of determination:

• the first is a written determination specifying a particular corporation or corporations.[54] Such a determination is not a legislative instrument.[55] However, it is a reviewable decision.[56]
• the second is a written determination specifying a class, or classes, of corporations.[57] Such a determination is a legislative instrument—and so is subject to disallowance by the Parliament.[58]

In either case, APRA will be required to consider whether, in making the determinations, the corporation(s) specified in the determination has (have) business activities that include the provision of finance.[59] However, any failure to comply with this requirement will not affect the validity of the determination.[60] Similarly, a failure by APRA to give a copy of any such determination to each corporation specified in the determination will not affect the validity of the determination.[61]

Determination—what is not a registrable corporation

Currently subsection 7(2) of the FSCODA sets out what is not a registrable corporation for the purposes of that Act. Item 4 repeals paragraph (7(2)(h) to remove existing references to a corporation that borrows money. Item 5 of Schedule 2 to the Bill inserts proposed paragraphs 7(2)(i) and (ia) into the FSCODA so that a corporation is not a registrable corporation in two particular circumstances:

• the first is that it is covered under subsection 7(2A) which is inserted into the FSCODA by item 6 of Schedule 2 to the Bill. Proposed subsection 7(2A) clarifies that a corporation is not a registrable corporation if the sum of the values of the corporation’s assets (consisting of debts due as a result of the provision of finance and principal amounts on loans or other financing) do not exceed $50 million (or any other amount as prescribed by regulations).
• the second is that it is specified in a determination or is in a class, or classes, of corporations specified in a determination under subsection 7(2F).

A determination by APRA that a particular corporation is not a registrable corporation under proposed paragraph 7(2F)(a) will be reviewable.[62]

APRA is required to give a copy of the determination to each corporation specified in the determination.[63] However, failure to comply with this requirement will not affect the validity of the determination.[64]

Item 9 of Schedule 2 to the Bill inserts proposed paragraph 32(1)(aa) into the FSCODA to update the definition of provision of finance to include the carrying out of activities that result in the funding or originating of loans or other financing. The provision of finance solely for intra-group activities between related corporations and the provision of financial advice will be excluded from the definition of provision of finance.[65]

From Royal Assent, certain non-ADI lenders will need to register with APRA (Section 7, FSCODA). The Explanatory Memorandum states that APRA will provide a transitional period for entities to register before commencing the Reporting Standards process that will enable data to be collected.[66]

Restricted words

Background

The amendments in Schedule 3 to the Bill will remove an existing impediment to the use of the term ‘bank’ by ADIs: provided that a financial entity has been granted an ADI authorisation by APRA, that entity will be entitled to use the term ‘bank’ should they so choose. APRA will retain its ability to restrict the use of the term ‘bank’ in certain circumstances.

An institution seeking to be prudentially regulated as an ADI is required to be authorised under the Banking Act. ADIs are subject to supervision by APRA which requires the ADI to comply with a range of requirements contained in Prudential Standards and provide comprehensive data to APRA under Reporting Standards.[67]

Under subsection 66(1) of the Banking Act, it is an offence if a person carries out a financial business and uses or assumes a restricted word or expression in relation to that business. APRA currently only permits ADIs with
Tier 1 capital exceeding $50 million to use the terms ‘bank’, ‘banker’ and ‘banking’.[68]

In its 2016 Review of the Four Major Banks: First Report, the House of Representatives Standing Committee on Economics argued for ‘reducing barriers to entry as much as prudently possible’ to ‘spur a more competitive, contestable and innovative banking sector’.[69]

Position of major interest groups

In its submission to the Treasury consultation process on Reducing barriers to new entrants to the banking sector – removing restrictions on the use of the term ‘bank’,[70] the Australian Bankers’ Association (ABA) argued for ‘express and absolute’ powers for APRA to deny the use of the term where ‘serious or unusual circumstances warrant’; ‘the reforms must not weaken APRA’s ability to promote financial system stability in Australia’.[71]

The Australian Small Business and Family Enterprise Ombudsman noted that APRA guidelines require, ‘where an ADI wishes to operate as a bank, the ADI must hold at least $50 million in Tier 1 capital’.[72] Unless these policy guidelines are reviewed, this requirement may prevent a number of smaller ADIs which are prudentially regulated by APRA from using the term ‘bank’.

Financial implications

There are no financial implications arising from this measure.

Schedule 3—key issues and provisions

Currently subsection 66(4) of the Banking Act provides that the words bank, banker and banking are restricted words. Under subsection 66(1) of the Banking Act it is an offence if a person carries on a financial business, whether or not in Australia and the person uses, in Australia, a restricted word in relation to that financial business—unless certain conditions are satisfied.

Item 3 of Schedule 3 to the Bill repeals and replaces subsection 66(1AC) so that it is not an offence for an ADI to use the words bank, banker and banking in relation to its financial business. APRA retains the ability to determine that some ADIs may not use the restricted terms by providing an affected ADI—that is, a single ADI or a class or classes of ADI—with a written determination.[73]

Under Part VI of the Banking Act (Reconsideration and review of decisions), an ADI will be able to seek a review of a determination in this section.[74] The current review mechanism, under subsection 66(2C) of the Banking Act, is repealed.[75] The Explanatory Memorandum notes that this change ‘is not expected to disadvantage applicants’ because, as a result of the changes in Schedule 3, the main applicants to use a restricted term will be able to use those terms.[76] This change does, however, apply to non-ADI financial businesses where APRA approval would not be automatically granted in the same way. In these cases, the usual review processes for administrative decisions will continue to have application, including review under the Administrative Decisions (Judicial Review) Act 1977.

Objects provisions

Background

Schedule 4 to the Bill modernises the Banking Act by inserting an objects provision to signal that the Banking Act’s primary purposes, including the protection of depositors in ADIs, are ‘consistent with the continued development of a viable, innovative and competitive banking industry’.[77]

The Explanatory Memorandum notes that, as a consequence of the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017, the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2017 (both introduced into the House of Representatives on 19 October 2017) and the measures contained in this Bill, the Banking Act is being comprehensively updated. The insertion of an objections provision ‘assists the reader to understand the multiple objectives of the Act’.[78]

Financial implications

There are no financial implications arising from this measure.

Schedule 4—key issues and provisions

Amendments to the Banking Act

Item 1 of Schedule 4 to the Bill inserts the main objects of the Banking Act, namely to protect the interests of depositors of ADIs in ‘ways that are consistent with the continued development of a viable, competitive and innovative banking industry’; and to promote financial system stability in Australia.[79]

The objects provision notes that the Banking Act, together with prudential standards and non-ADI lender rules determined by APRA will achieve these aims by:

• restricting who can carry out banking business in Australia[80]
• prudential supervision of ADIs by APRA[81]
• providing for APRA to manage or respond to circumstances in which the ability of an ADI to meet its obligations may be threatened[82]
• providing for certain account holders to be paid amounts where the financial claims scheme has been declared to apply to an ADI[83] and
• providing rules in relation to the provision of certain kinds of finance by non-ADI lenders, for the purpose of promoting financial system stability.[84]

The objects provision does not apply to those parts of the Banking Act which deal with foreign exchange, foreign investment, gold or interest rates.[85]

Amendments to the Insurance Act

Items 2 to 4 amend the Insurance Act to include the promotion of financial system stability in the main objects of the Insurance Act [86] and to reflect the additional powers given to APRA for crisis resolution and resolution planning.[87]

Amendments to the Life Insurance Act

Items 5 to 6 provide for similar amendments to the Life Insurance Act.

The appropriateness of this Schedule will depend upon the successful passage of the three bills identified above to which (some of) the provisions refer.

Credit card reforms

Background

The Credit Act sets out lending obligations which apply to all forms of regulated credit, including credit cards. ASIC has responsibility under the Credit Act for administering the obligations. These lending obligations require credit licensees to make reasonable inquiries about a consumer’s requirements and financial situation before providing a credit card, including making an assessment as to whether a credit contract is ‘not unsuitable’ for a consumer.[88]

ASIC’s primary guidance on responsible lending is set out in Credit Licensing: Responsible Lending Conduct.[89] ASIC also administers obligations specific to credit cards, introduced in the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Act 2011 and associated Regulations. These obligations, which are detailed in Part 3-2B of the Credit Act, include:

• a requirement for card providers to send a 'key facts sheet' to new card applicants, setting out how minimum repayments are calculated, interest rates that apply, and interest-free periods and fees
• a prohibition on unsolicited offers to increase card limits
• restrictions on the ability of providers to charge fees or higher interest rates when a cardholder exceeds their credit limit
• a requirement that repayments on credit cards must first be allocated towards those portions of a balance to which the highest interest rate applies (for cards issued after 1 July 2012) and
• the inclusion of a minimum repayment warning on monthly credit card statements, highlighting the length of time it would take a cardholder to repay their balance if they only made the minimum payment.

Senate Economics Committee inquiry

Concern about credit card interest rates and the credit card market more broadly were raised at Senate Estimates in June 2015. The Secretary to the Treasury noted:

... it does seem that the people who pay these credit-card interest rates—those who do not fully pay off the amounts—tend to be people, perhaps, less capable of servicing that debt, and that worries me. I think it is something well worth considering, and we will give some further thought to it.[90]

During the same Senate Estimates hearings, when asked about the ‘stickiness’ of credit card interest rates, officials from the RBA acknowledged that ‘the gap [between credit card interest rates and the cash rate] seems high and it is hard to explain why it is as large as it is’.[91]

To address the apparent problems with the use of credit cards within the community, on 24 June 2015, the Senate referred Matters relating to credit card interest rates to the Senate Economic References Committee (the Economics Committee) for inquiry and report.

Submissions

The Economics Committee received 37 submissions. Among these, the Treasury noted that, although the credit card market is characterised by a large number of products showing a wide spread of characteristics:

... the complexity of offerings can make it very difficult for consumers to compare products, especially where consumers suffer from behavioural bias such as near-term bias and overconfidence in their ability to constrain future spending.[92]

The Treasury argued for further consideration of the following:

• providing more transparency on card providers’ cost of funds
• clarifying and strengthening obligations placed on card providers to understand a consumer’s requirements and objectives and
• requiring credit card providers to conduct serviceability assessments based on repayments required to pay off debt within a reasonable period.[93]

ASIC considered the most significant problem associated with high interest rates on credit cards is that some consumers may have difficulty repaying their credit card debt and may face substantial hardship.[94] This was attributed to consumers over-borrowing and under-paying large amounts of credit card debt rather than high interest rates in themselves. ASIC argued that policy makers would be better able to target interventions the more they understood about:

(a) which segments of Australian consumers are driven by particular biases and the impact of their selection and usage of credit cards; (b) how industry structures and promotes credit cards in this context; and (c) the impact of existing and new interventions on industry and consumer behaviour.[95]

CHOICE argued that credit card providers rely on confusion to distract consumer attention from high interest rates:

[s]ome of the international competition thinkers call this 'confusopoly'—a deliberate strategy of product providers across a whole range of markets to make the comparison more difficult by adding lots of different features that are virtually impossible to compare.[96]

CHOICE pointed out that in order for consumers to be able to enjoy the benefits of competition, they need to be able to understand the products available in the market, be able to compare them and be able to match them to their own circumstances. Financial Counselling Australia argued that ‘competition is not effective in maintaining credit card interest rates at a reasonable level’ and encouraged the Government to legislate around product design and marketing (particularly regarding minimum payments and balance transfers).[97]

Westpac considered that ‘the current regulatory framework governing Credit Cards in Australia is appropriate’, arguing that it has its own ‘Principles of Responsible Lending’ through which it recognised its obligations to market products responsibly.[98] The Commonwealth Bank of Australia stated that additional regulation creates further uncertainty for credit card issuers;[99] while the Australian Finance Conference argued that changing regulatory requirements ‘present a significant barrier to competitive entry’.[100] ANZ advocated ‘improved consumer education and information’ to reduce the risk that consumers make decisions that lead to poor financial outcomes.[101]

Final report and Government response

On 16 December 2015 the Economics Committee released its report Interest Rates and Informed Choice in the Australian Credit Card Market (the Committee Report).[102] The Committee Report examined the level of credit card interest rates, the competitive dynamics of the credit card market and the impact of responsible lending obligations on credit card debt.

The Committee Report made eleven recommendations, mostly relating to improving disclosure on the costs of credit cards, improving cancellation and switching options and tightening responsible lending obligations.

In its response, the Government acknowledged that there was a small subset of consumers that persistently incur very high credit card interest charges, reflecting a lack of competition in credit card interest rates and behavioural biases which probably contribute to consumers borrowing more and repaying less than they would otherwise intend. As part of a wider package of reforms to improve competition in the credit card market, the Government proposed a two-stage reform process.[103] Proposed Phase 1 reforms, on which the Government sought stakeholder feedback, included the following:

• tightening responsible lending obligations to ensure card issuers assess suitability based on a consumer’s ability to repay the credit limit within a reasonable period (Recommendation 6 from the Committee Report)
• prohibiting issuers from making unsolicited credit limit increase offers including the ability to seek prior consent
• prohibiting issuers from backdating interest charges and charging interest on the portion of the balance that has been paid off, and
• requiring issuers to provide consumers with online options to initiate a card cancellation or reduce their credit limit (arising from Recommendation 5).

In the 2017–18 Budget, the Government announced that it would ‘clamp down on poor practices in the credit card market by putting in place new rules on providing credit cards’.[104]

Schedule 5 to the Bill amends the Credit Act to introduce the Phase 1 reforms. In the second reading speech, the Treasurer argued:

[t]hese reforms are a necessary and important step in reducing the incidence of consumers building up unmanageable credit card debts and improving competition in the credit card market.[105]

Phase 2 reforms were recommended for further consumer testing by the Australian Government’s Behavioural Economics Team.[106] Testing was undertaken between June and October of 2017 to assess the efficacy of behavioural interventions, such as reminders, in improving credit card repayment rates. This may lead to further legislative changes in the future. At the time of writing, the testing report had not been publicly released.

Policy position of non-government parties/independents

In the Committee Report, Senator Nick Xenophon called for greater scrutiny of the ethical behaviour of lending institutions, recommending prompt action on the Economics Committee recommendations. He argued:

[c]onsideration should be given, in conjunction with consumer groups and experts, to providing appropriate warnings on credit card statements and credit card advertisements.[107]

Position of major interest groups

The Economics Committee received 37 submissions to its 2015 inquiry into Matters relating to credit card interest rates. The main issues and concerns have been summarised above.

The Government released an Exposure Draft Bill for consultation on 14 August 2017. No submissions were publicly available at the time of writing.

On 20 December 2017, the ABA announced that a new Code of Banking Practice had been sent to ASIC for approval.[108] This follows an Independent Review of the Code of Banking Practice (the Khoury Report) which was published on 31 January 2017. The Khoury Report made 99 recommendations. Several of these recommendations related to credit card lending, in particular:

• requiring banks to assess a consumer’s capacity to pay the full amount of a card credit limit in a reasonable time period (recommendation 20)
• prohibiting banks from offering a credit card limit increase to a customer other than in response to a customer-initiated specific request for a higher credit limit (recommendation 22)
• preventing banks from charging customers interest on the portion of their credit card balance that is paid off by the due date (recommendation 23) and
• where there is functionality (electronic or otherwise) for a customer to alter a credit card limit, this must include the ability to reduce the credit limit or to cancel a credit card (recommendation 26).

Among the proposed changes in the new Code of Banking Practice is the inclusion of a right to close a credit card account online. According to the ABA, provisions in the code will be legally binding as part of contracts with customers, with implementation monitored by the Banking Code of Compliance Committee. However, the Small Business Ombudsman has argued that the proposed Code of Banking Practice might be unenforceable, with the Compliance Committee only able to recommend remedial action.[109] Schedule 5 contains provisions to allow credit card consumers to request termination of a credit card contract, including by online means.

Financial implications

The Explanatory Memorandum contains a regulatory costing for the reform package.[110] Credit card providers will face implementation and ongoing costs associated with updating IT systems to provide online options and to implement the changes to the calculation of interest. They will also incur costs associated with developing new procedures and processes, as well as with monitoring compliance with the new regulations. It is estimated that the increase in annual compliance costs for the industry as a whole will be $36.4 million. The Office of Best Practice Regulation in the Department of the Prime Minister and Cabinet (PM&C) has agreed with this estimate.[111]

Schedule 5—key issues and provisions

Reform 1: tightening responsible lending obligations for credit card contracts

Reform 1 introduces a requirement that a consumer’s suitability for a credit card contract or credit limit increase be assessed according to their ability to pay the credit limit within a certain period. Currently, various Parts of the Credit Act provide that a contract is, or will be, unsuitable for a consumer if a consumer would be unable to comply with their financial obligations under the contract, or could only comply with substantial hardship. If the consumer could only comply with the consumer’s financial obligations under the contract by selling his or her principal place of residence, it is presumed that he consumer could only comply with those obligations with substantial hardship.

Items 1–6 in Part 1 of Schedule 5 to the Bill amend the Credit Act to introduce an additional circumstance of substantial hardship, namely if the consumer could not comply with an obligation to repay an amount equivalent to the credit limit of the contract within a period determined by ASIC.[112] Item 8 in Part 1 of Schedule 5 to the Bill inserts proposed section 160F into the Credit Act which empowers ASIC to determine those periods by legislative instrument. Different periods may be determined in relation to different classes of credit card contracts, different credit limits and different rates of interest.

It is intended that ASIC will make a legislative instrument after Royal Assent and before commencement of Part 1 of Schedule 5 on 1 January 2019. The amendments in relation to entering a credit card contract apply to contracts entered into on or after the commencement of Part 1; the amendments in relation to remaining in a credit card contract or increasing the credit limit apply to credit card contracts entered into before, on or after commencement of Part 1.[113]

Reform 2: prohibiting unsolicited credit limit offers in relation to credit card contracts

Part 2 of Schedule 5 to the Bill inserts two new measures into the Credit Act:

• first, the Bill removes a loop-hole that allows credit card providers to circumvent the existing restriction on making unsolicited credit limit offers and
• second, the Bill introduces the concept of a credit limit reduction entitlement which requires credit providers to reduce the credit limit of a credit card contract.

Unsolicited credit limit offers

Section 133BE of the Credit Act prohibits credit card providers from making unsolicited offers to increase a consumer’s credit limit under a credit card contract in writing, unless the provider has received prior consent from the consumer to do so. Written communication that is not specific to a consumer’s credit card contract does not fall within this prohibition. Similarly, some credit card providers circumvent this restriction by making unsolicited offers by other means (such as over the phone or online); and consumers are often unaware that they have granted prior consent to receiving unsolicited offers. This reform amends the Credit Act to address these issues.

The Bill amends the Credit Act to substitute ‘any form of communication’ in place of ‘written communication’.[114] The informed consent defence is also removed.[115]

Credit limit reduction entitlement

Items 15–18 of Part 2 in Schedule 5 to the Bill operate so that all credit card contracts give consumers who are debtors under the contract a credit limit reduction entitlement.[116]

Item 17 amends the heading of Division 4 in Part 3-2B of the Credit Act to reflect this entitlement. The amended Division 4 imposes restrictions on a licensee making offers to increase the credit limit of a credit card contract and imposes requirements aimed at ensuring the consumer can reduce the credit limit of a credit card contract.

Item 18 amends the Credit Act to require that a credit provider:

• not enter into a credit card contract unless it allows a credit limit to be reduced[117]
• provide an online capacity to request reduction of a credit limit[118]
• not suggest that the consumer should not apply for an increase or should not reduce the credit limit when the consumer has requested a reduction in the credit limit[119] and
• ‘take reasonable steps’ to give effect to a request to reduce a credit limit.[120]

In each case a failure to comply with the requirement gives rise to a civil penalty of up to 2,000 penalty units. Except in the case of the requirement to provide an online capacity to request reduction of a credit limit, criminal penalties also arise with a maximum penalty of 50 penalty units.

Reform 3: simplifying the calculation of interest charges under credit card contracts

Part 3 of Schedule 5 to the Bill inserts proposed Division 7—calculation of interest under credit card contracts into Part 3-2B of the Credit Act to impose new requirements relating to the application of interest charges under credit card contracts. It simplifies and standardises the application of interest to credit card balances when the balance is only partly paid off in a statement period.

Item 20 of Schedule 5 to the Bill prohibits a credit card provider from imposing a liability to pay a rate of interest retrospectively to the balance (or part of the balance) of a credit card contract.[121] This means that if some or all of a credit card balance is subject to an interest free period on a day, a credit card provider will not be permitted subsequently to apply a liability to pay interest on the balance for that day because that balance was not paid off by the due date. A credit card provider will only be able to apply a rate of interest to any unpaid balance on days that occur after the unpaid balance’s payment due date.

Failure to comply with the prohibition on imposing retrospective interest charges attracts a civil penalty of 2,000 penalty units and is an offence, attracting a criminal penalty of 50 penalty units. None of the criminal penalty provisions carry a penalty of imprisonment.

The Explanatory Memorandum states that it is intended that consequential amendments will be made to the National Consumer Credit Protection Regulations 2010 (Credit Regulations) to extend the infringement notice scheme contained in the Credit Act to contraventions of the civil penalty provision. An Exposure Draft of the National Consumer Credit Protection Amendment (Credit Cards) Regulations 2017 amends the Credit Regulations to include these civil penalty provisions under the definition of ‘infringement notice offence’.

Reform 4: reducing credit limits and terminating credit card contracts, including by online means

Item 23 of Part 4 of Schedule 5 to the Bill inserts proposed Division 8—ending credit card contracts into Part 3‑2B of the Credit Act to impose requirements aimed at ensuring a consumer can terminate a credit card contract.

Items 21 to 23 insert a requirement that all credit card contracts give consumers who are debtors under a contract a credit card termination entitlement.[122]

New Division 8 imposes the following requirements on a credit provider:

• not to enter into a credit card contract unless the customer has an entitlement to terminate the contract[123]
• to provide an online capacity, including establishing and maintaining a website, which a customer can use to request termination of a credit card contract[124]
• not to suggest that a customer not terminate a credit card contract if the customer has requested such a termination[125] and
• to ‘take reasonable steps’ to ensure that a customer request to terminate a credit card contract is given effect.[126]

Reasonable steps may include communicating any further actions that must be undertaken by the consumer for the credit provider to complete the request.

Failure by a credit card provider to comply with these requirements will attract a maximum civil penalty of 2,000 penalty units and (other than provision of the online capacity) will be an offence, attracting a criminal penalty of up to 50 penalty units.

The Explanatory Memorandum states that ‘it is intended that consequential amendments will be made to the Credit Regulations to extend the infringement notice scheme contained in the Credit Act to contraventions of the civil penalty provisions that apply to breaches of these requirements’.[127]

Application provisions

The relevant application provisions are in Part 5 of Schedule 5 to the Bill. Item 24 amends the Credit (Transitional and Consequential Provisions) Act to insert proposed Schedule 6 which will set out the application provisions for this Bill.

New Division 7 of Part 3-2B of the Credit Act applies to the calculation of interest charges on credit card contracts entered into before, on, or after, 1 January 2019.[128]

New Division 8 of Part 3-2B of the Credit Act applies to credit card contracts entered into on or after 1 January 2019.[129]

Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2500.

[1].         Senate Standing Committee for the Selection of Bills, Report, 13, 2017, The Senate, 16 November 2017.

[2].         Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 13, The Senate, 15 November 2017, pp. 56–8.

[3].         The Statement of Compatibility with Human Rights can be found at pages 17–18, 40–1, 45 and 69–73 of the Explanatory Memorandum to the Bill.

[4].         Parliamentary Joint Committee on Human Rights, Human rights scrutiny report, 12, 28 November 2017, p. 96.

[5].         Reserve Bank of Australia (RBA), ‘Main types of financial institutions’, RBA website, June 2017.

[6].         Australian Securities and Investments Commission (ASIC), ‘Our role’, ASIC website, last update 7 November 2017.

[7].         Australian Prudential Regulation Authority (APRA), ‘Supervision’, APRA website.

[8].         Financial Stability Board (FSB), Assessment of shadow banking activities, risks and the adequacy of post-crisis policy tools to address financial stability concerns, FSB, Switzerland, 3 July 2017, p. 6.

[9].         M Gishkariany, D Norman and T Rosewall, ‘Shadow bank lending to the residential property market’, Reserve Bank of Australia Bulletin, September Quarter 2017.

[10].      Ibid.

[11].      Australian Government, Budget measures: budget paper no. 2: 2017–18, 9 May 2017, p. 163.

[12].      Explanatory Memorandum, Treasury Laws Amendment (Banking Measures No. 1) Bill 2017, p. 27.

[13].      Ibid., p. 7.

[14].      Banking Act, section 11AF.

[15].      Banking Act, subsection 5(1) sets out the meaning of the term prudential matters.

[16].      Explanatory Memorandum, Treasury Laws Amendment (Banking Measures No. 1) Bill 2017, p. 3.

[17].      RBA, Financial stability review, RBA, Sydney, October 2017, p. 42.

[18].      Gishkariany, Norman and Rosewall, ‘Shadow bank lending to the residential property market’, op. cit.

[19].      Explanatory Memorandum, Treasury Laws Amendment (Banking Measures No. 1) Bill 2017, p. 8.

[20].      FSCODA, subsection 3(1).

[21].      RBA, ‘Main types of financial institutions’, op. cit.

[22].      Australian Bureau of Statistics (ABS), Assets and liabilities of Australian securitisers, September 2017, cat. no. 5232.0.55.001, ABS, Canberra, 2017.

[23].      FSB, Assessment of shadow banking activities, op. cit. Australian members of the FSB include representatives from the Treasury and the RBA.

[24].      Ibid., p. 5.

[25].      The Council of Financial Regulators is a non-statutory co-ordinating body for financial regulation in Australia with membership comprising the RBA (Chair), Treasury, APRA and ASIC.

[26].      Explanatory Memorandum, Treasury Laws Amendment (Banking Measures No. 1) Bill 2017, p. 35.

[27].      Explanatory Memorandum, Treasury Laws Amendment (Banking Measures No. 1) Bill 2017, p. 31.

[28].      Australian Finance Industry Association, Submission to the Treasury Consultation, New APRA powers to address financial stability risks – non-ADI lender rules, 21 August 2017.

[29].      Australian Securitisation Forum, Submission to the Treasury Consultation, New APRA powers to address financial stability risks – non-ADI lender rules, Treasury Laws Amendment (Non-ADI Lender Rules) Bill 2017: Exposure Draft, 21 August 2017.

[30].      Columbus Capital, Submission to the Treasury Consultation, New APRA powers to address financial stability risks – non-ADI lender rules, Treasury Laws Amendment (Non-ADI Lender Rules) Bill 2017: Exposure Draft, 21 August 2017. Securitisation is the process of converting a pool of illiquid assets (such as mortgages, car loans or credit card debt obligations) into interest-bearing tradeable securities. Investors are repaid from the principal and interest cash flows collected from the underlying assets. Securitisation represents an alternative source of finance based on the transfer of credit risk from issuers to investors.

[31].      King & Wood Mallesons, Submission to the Treasury Consultation, New APRA powers to address financial stability risks – non-ADI lender rules, Treasury Laws Amendment (Non-ADI Lender Rules) Bill 2017: Exposure Draft, 21 August 2017. Mortgage and Finance Association of Australia, Submission to the Treasury Consultation, New APRA powers to address financial stability risks – non-ADI lender rules, Treasury Laws Amendment (Non-ADI Lender Rules) Bill 2017: Exposure Draft, 14 August 2017.

[32].      Specialty Mortgage Consulting Pty Limited, Submission to the Treasury Consultation, New APRA powers to address financial stability risks – non-ADI lender rules, Treasury Laws Amendment (Non-ADI Lender Rules) Bill 2017: Exposure Draft, 11 August 2017.

[33].      FinTech Australia, Submission to the Treasury Consultation, New APRA powers to address financial stability risks – non-ADI lender rules, Treasury Laws Amendment (Non-ADI Lender Rules) Bill 2017: Exposure Draft, August 2017.

[34].      Explanatory Memorandum, Treasury Laws Amendment (Banking Measures No. 1) Bill 2017, p. 27.

[35].      Australian Government, Budget measures: budget paper no. 2: 2017–18, op. cit., p. 163.

[36].      Explanatory Memorandum, Treasury Laws Amendment (Banking Measures No. 1) Bill 2017, p. 26. The Financial Institutions Supervisory Levies are determined by Treasury and APRA in June of the relevant financial year.

[37].      Banking Act, proposed subsections 38C(2) and (4).

[38].      Banking Act, proposed section 38E.

[39].      Banking Act, proposed subsection 38C(6).

[40].      Banking Act, proposed section 38D.

[41].      Banking Act, proposed paragraph 38H(b).

[42].      Banking Act, proposed subsection 38F(4).

[43].      Banking Act, proposed subsection 38F(5).

[44].      Banking Act, proposed section 38G.

[45].      Banking Act, proposed section 38H.

[46].      Banking Act, proposed section 38K.

[47].      Section 4AA of the Crimes Act 1914 provides that a penalty unit is valued at $210.

[48].      Banking Act, proposed subsection 38L(2).

[49].      Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest, 13, 2017, op. cit., pp. 56–8.

[50].      Ibid., pp. 56–7.

[51].      Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest, 15, 2017, Ministerial responses, pp. 40–2.

[52].      Ibid.

[53].      FSCODA, proposed paragraph 7(a) inserted by item 2 of Schedule 2 to the Bill.

[54].      FSCODA, proposed paragraph 7(1A)(a) inserted by item 3 of Schedule 2 to the Bill.

[55].      FSCODA, proposed subsection 7(1B).

[56].      FSCODA, proposed paragraph 31(aa) inserted by item 8 of Schedule 2 to the Bill.

[57].      FSCODA, proposed paragraph 7(1A)(b) inserted by item 3 of Schedule 2 to the Bill.

[58].      FSCODA, proposed subsection 7(1C).

[59].      FSCODA, proposed subsection 7(1D).

[60].      FSCODA, proposed subsection 7(1E).

[61].      FSCODA, proposed subsections 7(1F) and (1G).

[62].      FSCODA, proposed paragraph 31(ab) inserted by item 8 of Schedule 2 to the Bill.

[63].      FSCODA, proposed subsection 7(2J).

[64].      FSCODA, proposed subsection 7(2K).

[65].      FSCODA, proposed subsection 32(1A) inserted by item 10 of Schedule 2 to the Bill.

[66].      Explanatory Memorandum, Treasury Laws Amendment (Banking Measures No. 1) Bill 2017, p. 34.

[67].      APRA, ‘How to apply for an ADI authority’, APRA website.

[68].      APRA, Guidelines: implementation of section 66 of the Banking Act 1959, APRA, April 2013. Tier 1 capital consists of the funding sources to which a bank can most freely allocate losses without triggering bankruptcy, including ordinary shares and retained earnings. It comprises common equity tier 1 (CET1) capital and additional tier 1 capital. Under APS 111, going-concern capital refers to capital against which losses can be written off while an ADI continues to operate. Going-concern capital will also absorb losses should the ADI ultimately fail. APRA requires the four major Australian banks to have CET1 capital ratios of at least 10.5 per cent to meet the ‘unquestionably strong’ benchmark.

[69].      House of Representatives Standing Committee on Economics, Review of the four major banks: first report, Canberra, November 2016, p. 57.

[70].      The Treasury, Reducing barriers to new entrants to the banking sector – removing restrictions on the use of the term ‘bank’, Consultation, August 2017.

[71].      Australian Bankers’ Association Inc., Submission to the Treasury Consultation, Reducing barriers to new entrants to the banking sector – removing restrictions on the use of the term ‘bank’, 14 August 2017.

[72].      Australian Small Business and Family Enterprise Ombudsman, Submission to the Treasury Consultation, Reducing barriers to new entrants to the banking sector – removing restrictions on the use of the term ‘bank’, 14 August 2017.

[73].      Banking Act, proposed subsections 66AA(3) and (4) inserted by item 5 of Schedule 3 to the Bill.

[74].      Banking Act, proposed subsection 66AA(9).

[75].      Item 4 of Schedule 3 to the Bill.

[76].      Explanatory Memorandum, Treasury Laws Amendment (Banking Measures No. 1) Bill 2017, p. 39.

[77].      Ibid., p. 43. An objects clause is a provision in a statute outlining the purpose or objective of the statute. Objects clauses have replaced preambles in most Australian jurisdictions. Objects clauses may be referred to by the courts when ascertaining the meaning of ambiguous text in statutes. Source: Butterworths concise Australian legal dictionary, 3rd edn, LexisNexis Butterworths, Australia, 2004, p. 303.

[78].      Explanatory Memorandum, Treasury Laws Amendment (Banking Measures No. 1) Bill 2017, p. 44.

[79].      Banking Act, proposed subsection 2A(1).

[80].      Banking Act, proposed paragraph 2A(2)(a).

[81].      Banking Act, proposed paragraph 2A(2)(b).

[82].      Banking Act, proposed paragraph 2A(2)(c).

[83].      Banking Act, proposed paragraph 2A(2)(d).

[84].      Banking Act, proposed paragraph 2A(2)(f).

[85].      Banking Act, proposed subsection 2A(4).

[86].      Insurance Act, proposed paragraph 2A(1)(b) inserted by item 3 of Schedule 4 to the Bill.

[87].      Insurance Act, proposed paragraphs 2A(2)(e) and (f) inserted by item 4 of Schedule 4 to the Bill.

[88].      Senate Economics References Committee, Interest rates and informed choice in the Australian credit card market, The Senate, Canberra, December 2015, p. 19.

[89].      ASIC, Credit licensing: responsible lending conduct, Regulatory guide 209, ASIC, November 2014.

[90].      Senate Economics References Committee, Interest rates and informed choice in the Australian credit card market, op. cit., p. 2.

[91].      Ibid.

[92].      M Willcock, Senate Economics References Committee, Official committee Hansard: Matters relating to credit card interest rates, 22 September 2015, p. 55.

[93].      The Treasury, Submission to the Senate Standing Committee on Economics, Inquiry into credit card interest rates, 11 August 2015, p. 19.

[94].      ASIC, Submission to the Senate Standing Committee on Economics, Inquiry into credit card interest rates, August 2015, p. 7.

[95].      Ibid., p. 11.

[96].      A Kirkland, Senate Economics References Committee, Official committee Hansard: Matters relating to credit card interest rates, 27 August 2015, p. 53.

[97].      Financial Counselling Australia, Submission to the Senate Standing Committee on Economics, Inquiry into credit card interest rates, 26 August 2015.

[98].      Westpac Group, Submission to the Senate Standing Committee on Economics, Inquiry into credit card interest rates, 15 August 2015.

[99].      Commonwealth Bank of Australia, Submission to the Senate Standing Committee on Economics, Inquiry into credit card interest rates, August 2015.

[100].   Australian Finance Conference, Submission to the Senate Standing Committee on Economics, Inquiry into credit card interest rates, August 2015.

[101].   ANZ, Submission to the Senate Standing Committee on Economics, Inquiry into credit card interest rates, August 2015.

[102].   Senate Economics References Committee, Interest rates and informed choice in the Australian credit card market, op. cit.

[103].   Australian Government response to the Senate Economics References Committee report: Interest rates and informed choice in the Australian credit card market, 6 May 2016.

[104].   Australian Government, Budget 2017–18: budget overview, 9 May 2017, p. 25.

[105].   S Morrison (Treasurer), ‘Second reading speech: Treasury Laws Amendment (Banking Measures No. 1) Bill 2017’, House of Representatives, Debates, 19 October 2017, p. 11274.

[106].   PM&C, ‘Credit where it’s due: reducing credit card debt’, PM&C website.

[107].   Senate Economics References Committee, Interest rates and informed choice in the Australian credit card market, op. cit., pp. 103–4.

[108].   Australian Bankers’ Association (ABA), Customers set to benefit from new Banking Code, media release, 20 December 2017.

[109].   P Ryan, ‘Banking code of conduct leaves much to be desired, says small business’, ABC news online, 21 December 2017.

[110].   Explanatory Memorandum, Treasury Laws Amendment (Banking Measures No. 1) Bill 2017, p. 76–7.

[111].   PM&C, ‘Regulation impact statement updates: credit card reforms’, PM&C website, 2 November 2017.

[112].   Credit Act, proposed subsections 118(3AA), 119(3A), 123(3AA), 124(3A), 131(3AA) and 133(3AA).

[113].   Credit (Transitional and Consequential Provisions) Act, proposed Schedule 6, item 4.

[114].   Credit Act, paragraph 133BE(5)(a) amended by item 12 of Part 2 in Schedule 5 to the Bill; and subsection 133BE(6) amended by item 13 of Part 2 in Schedule 5 to the Bill.

[115].   Credit Act, sections 133BF and 133BG repealed by item 14 of Part 2 in Schedule 5 to the Bill.

[116].   Item 15 inserts a reference to the term into subsection 5(1) of the Credit Act.

[117].   Credit Act, proposed section 133BF.

[118].   Credit Act, proposed section 133BFA.

[119].   Credit Act, proposed section 133BFB.

[120].   Credit Act, proposed section 133BFC.

[121].   Credit Act, proposed section 133BS.

[122].   Item 21 inserts a reference to the term into subsection 5(1) of the Credit Act.

[123].   Credit Act, proposed section 133BT.

[124].   Credit Act, proposed section 133BU.

[125].   Credit Act, proposed section 133BV.

[126].   Credit Act, proposed section 133BW.

[127].   Explanatory Memorandum, Treasury Laws Amendment (Banking Measures No. 1) Bill 2017, p. 64.

[128].   Credit (Transitional and Consequential Provisions) Act), proposed Schedule 6, item 5.

[129].   Credit (Transitional and Consequential Provisions) Act), proposed Schedule 6, item 6.

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