Chapter 2 Analysis of the Bill
Clause 2 of the Bill provides two main commencement dates. The
provisions relating to fact sheets for home loans are scheduled to commence on
1 September 2011. This includes the requirement that the lender’s website be
able to generate the fact sheets. The remainder of the Bill is scheduled to
commence on 1 July 2012.
Industry made two sets of comments about these dates. The first was that
the 1 September date was too soon. Abacus Australian Mutuals (Abacus), the
Australian Bankers’ Association (ABA) and the Australian Finance Conference (AFC)
all put this view in their submission.
Treasury said that it had some ‘sympathy’ with industry that the
deadline was challenging and had raised this matter with the Government.
However, Treasury also stated that some firms had advised them that the 1 September
date was achievable ‘at a pinch’. Further, various
simplifications had been made to the requirements and many of the firms’
websites already have much of the required technology in place:
While the date was ambitious, there were various
simplifications between the exposure draft and the bill to make the obligations
less onerous and more straight forward to comply with. The obligations now only
apply where a lender has a website on which you can apply or make an inquiry
about a home loan, and many of those lender websites already have a similar
mechanism for calculating what is payable in repayments—repayment
calculators—but this would require the sort of outcomes of those calculators to
be presented in a consistent format. The technology is largely there. We did
remove the obligation, or defer to the regulations and possibly a later date,
the requirement to provide it on application and have simplified other
reporting or technical requirements.
Industry’s response was that, while it was possible for industry in some
cases to achieve this tight timeline, it would increase costs. The AFC stated:
I have been at an interview this morning in relation to the
Treasury comment and, as I recall, there were qualifications like: in a pinch,
people could be ready by 1 September. That could have a range of meanings, but
one meaning it might have is that I can throw several dollars at it and be
ready by 1 September. But this is about balance.
In evidence, there was discussion whether the start date should be
extended to 1 January 2012. The ABA subsequently responded that this would not
be suitable because banks freeze their IT systems over December due to the high
volume of transactions at this time.
The second request of industry was that the commencement date for the
Bill in general should be at least 12 months after the legislation and
regulations were finalised. This view was put in submissions by Abacus, the ABA
and the AFC. This last organisation
spelled out its views in evidence:
I think industry is uniform in relation to these reforms and
reforms in relation to consumer credit generally. In order to allow the other
component of government—and that is actually minimisation of implementation
cost to occur with the implementation of these reforms—industry needs at least
a 12-month lead time from the date that the final detail of the law is known in
order to make the relevant changes in the documentation system, staff training
et cetera that we have talked about. I think industry would have difficulty at
this point in giving a specific date. Assuming that we are going to see this
law get through by, say, June, I guess we are looking at 1 July next year for the
home loan components to commence.
The committee recognises that 1 September 2011 is a tight deadline for
industry and Treasury confirmed this in evidence. Therefore, the committee
supports delaying this commencement until 1 January 2012 to allow industry more
time to implement the reforms in a cost effective way. As with many reforms,
there may be some teething issues and the committee would like to see some
flexibility with enforcement in the early weeks. This would be especially so,
given the traditionally high volume of credit transactions at the end of each
At this stage, the committee does not support industry’s position that
it needs a full 12 months for implementation after all the regulations and
legislation are finalised. Treasury is negotiating with industry on the
regulations and most of the final content will be apparent to industry before
they are made. The 1 July 2012 start date for the remainder of the Bill appears
suitable to the committee at this point in time.
||Clause 2 of the Bill be amended so that the commencement
date for the provisions relating to Key Fact Sheets for home loans be set
back to 1 January 2012. ASIC should take a practical approach to
enforcing the provisions in the initial weeks after commencement.
Parties raised concerns in submissions and at the hearing around the
‘retrospective’ application of the provisions relating to credit limit increase
offers. Whilst the majority of the provisions in the Bill only apply to new
credit card contracts or home loan enquiries, the prohibition on making these
unsolicited offers extends to all credit card contracts from the date the
legislation comes into effect. This includes making offers to existing credit
It was submitted that these provisions are inconsistent with the
Government’s ‘Fairer, Simpler Banking’ policy, released as an election
commitment prior to the 2010 election. That policy stated ‘The
changes will apply to new credit cards.’
The ABA emphasised to the committee the concerns of industry:
The government's pre-election commitments state very clearly
that its new regulations would apply only to new credit cards. This was
reiterated throughout the government's consultation with industry. We were
therefore very disappointed when, without notice, the government reversed this
position and announced it would legislate to change credit contracts retrospectively.
Lenders were particularly concerned by the ‘administrative burden of
compliance and the cost of seeking and recording customer opt-ins for the
receipt of otherwise prohibited written communications would be extremely
high...’ They argued that the
burden of having to write to 15 million credit card holders asking whether
or not they wanted to ‘opt-in’ to receiving unsolicited credit limit
increase offers outweighed any benefit that might be received by consumers, and
that the risk of non-compliance was onerous.
Consumer groups pointed to the fact that although the provisions apply
to existing credit card contracts, they have prospective application. The
Consumer Credit Legal Centre advised:
I can see absolutely no reason why that could be considered
in anyway retrospective, because that is about an offer to change your
contractual commitments in the future. It does not have retrospective impact at
The committee put this point to the lenders who were of the opinion that,
‘They are prospective offers but arising from existing contracts.’
Visa expanded on this concern, telling the committee:
... the ability for the offer to be made stems from a
contract that predates this provision coming into force and cutting off that
ability that predated the legislation once it comes into force.
The committee further asked specifically what contracts customers sign
that mean that prospective credit limit increase offers are bound to the
original contract. The only response lenders were able to provide is that these
were ‘standard business practices that lie to some degree at the base of the
credit card contract, the card arrangement’. They further put the
argument that existing customers would still be able to voluntarily ‘opt out’
of receiving unsolicited credit limit increase offers.
Given the importance of this particular reform, discussed in Chapter 1,
it is appropriate that provisions apply to all credit card contracts from the
commencement date of the legislation.
The unfairness behind retrospective laws is that people are caught out
by a later change in the law that they were unaware of at the time. The
industry did not adduce evidence that they acted in a certain way after the
election commitment, and that they would have acted differently if they had
foresight of the Bill’s provisions.
In respect of what was included in the election commitment, this is a
political statement and the Government will ultimately be held accountable by
the Australian public as to how it has been delivered. The committee agrees
that the application of the prohibition on credit limit increase offers to
existing credit contracts is appropriate and necessary given the importance of
these reforms. The introduction of these measures is in the interests of consumers
and in the spirit of the commitment made by the Government.
Costs to industry
Industry members raised a number of concerns around the costs of
implementing the new provisions. They claimed that there was a risk that any
additional costs would be passed on to consumers, and would especially affect
those consumers who fully pay off their balances each month.
The ABA told the committee that it was difficult to be definitive about
the extent of costs, given how much of the detail of the reforms was to go in
the regulations. It confirmed, however, that there would be costs associated
with the implementation of the legislation:
Some of these will be transitional costs insofar as we will
need to invest time and effort in making changes to bank systems and in
training staff to ensure that they understand what is required under the new
legislation – particularly as the penalties for non-compliance are quite severe
– but there will also be ongoing costs.
Visa pointed out that similar legislation to the Bill had been passed in
the United States. Any reduction to bank revenues through the removal of
penalty fees had been largely offset by higher annual fees and other costs. In
some instances costs for consumers had even increased.
Treasury told the committee that administrative costs were likely to be
transitional and not extensive over the long term.
They also raised the point that costs could be built in to other activities:
It is not straightforward in the sense that banks take
advantage of these to make other changes that suit them. For example, one bank
has utilised responsible lending to build in a whole range of conversations
with the consumers at that point to have a greater sense of engagement with them.
Treasury was also of the view that the legislation would provide a huge
increase in benefit to consumers and not increased costs.
They reiterated this point after the hearing, as well as advising the committee
that costs for some lenders would be greatly reduced because they have
voluntarily implemented some of the reforms already:
Treasury has done internal assessments on the effect of the
extra compliance costs that may result from the reforms, and considers that
these costs will have no impact on price as there will be countervailing
It is also not possible to generalise in relation to costs.
Implementation and transition costs will vary between lenders according to the
size and flexibility of their existing systems and their existing practices.
For example, some lenders have already adopted in substance, on a voluntary
basis, some of the proposed reforms, and will necessarily incur lower
transition costs. 
Consumer groups also dismissed some of these concerns, pointing out that
it was a matter of weighing up slightly increased costs compared to the
benefits of the legislation. The Consumer Credit
Legal Centre told the committee that in relation to the prohibition on credit
limit increase offers, they could not see how there would be additional costs
that would be passed on.
However the ABA disputed Treasury’s assessment of costs as minimal,
and in a supplementary submission to the committee assessed that costs could be
as high as $100 million to $150 million.
The committee recognises that there will be short run costs associated
with the legislation but believes that these costs are outweighed by the
importance of the reforms. Indeed, the greater competitive pressures generated
by the Bill will mean that the impact on price will be marginal, if any. The
committee also agrees with Treasury’s assessment that any administrative costs
relating to the reforms will not be significant compared to lenders’ profit
margins. Further, implementing these reforms could provide lenders an
opportunity to change operating systems and customer interactions to their
Use of regulations
The frequent use of regulations in the Bill was raised by all the main
industry groups. However, they expressed a range of views:
n the ABA recommended
that the Bill should not be passed until the regulations are finalised;
n the AFC stated that
some of the detail was policy (such as the definition of a standard home loan) and
should be dealt with in the Bill; and
n Abacus urged the
Government to subject the regulations to comprehensive industry consultations.
At the hearing, the committee asked Treasury to account for its approach:
The process in relation to the regulations began in the
development of the policy, and at some points there were issues that were
clearly identified as needing to be addressed, probably preferably in the
regulations rather than in the bill itself. An example in relation to
over-limit transactions is where lenders are not in a position to reject the
transaction. There is a whole range of scenarios where there may not be direct
contact between the supplier of goods or services and the lender and where
there transaction might take it over the limit but the lender cannot prohibit
it. So those types of issues which need to be described in a quite technical
and precise way were identified early on as ones that needed to be deferred to
the regulations to ensure that the wording captured that sense of precision and
the high-level principles were put in the bill.
The committee notes the ABA’s suggestion that the Bill be delayed until
the regulations are finalised. However, in the view of the committee, this
approach is not realistic and departs from usual practice. It is common
practice to pass bills and then flesh out the detail through regulations at a
later date. The commencement date for most of the Bill is over 12 months
away, which should give industry and Treasury sufficient time to work together
on practical measures that deliver the policy intent behind the Bill.
If much of the detail of the Bill is going to be developed in the near
future, then it is important that the regulations are clear and workable. One
method of achieving this outcome is achieved is for Treasury to thoroughly
consult with industry in developing the regulations, along the lines of Abacus’s
Treasury stated in evidence that it has commenced consultations on the
regulations as follows:
Since the bill was finished we have had a number of
consultations on the regulations in a similar format. So Treasury has put out
position papers as to what it intends to do or what policy issue is being
addressed, and has sought feedback from stakeholders and used that to develop
the drafting instructions.
The committee is satisfied that an appropriate consultation process is
under way in relation to the regulations.
The committee agrees that the fast-moving and technical nature of modern
finance requires that some matters must be delegated to regulations. This will
give government and regulators increased flexibility to adapt to the industry
as technology and consumer tastes evolve. For example, Visa supported this
approach in evidence in relation to the buffers.
The extent of delegation must be determined on a case by case basis and the
committee supports Treasury’s approach in this instance.
Taking into account the highly technical nature of the reforms being
undertaken in the Bill, the committee is satisfied that it adopts an
appropriate balance between stating principles and delegating detail. However,
the effectiveness of the regulations will depend on their clarity and fitness
for purpose. Therefore, the committee endorses the comments by Abacus on the
value of industry consultation.
Home loan websites
Proposed section 133AC of the Bill makes a number of requirements of a
lender when consumers can use their website to inquire about or apply for a
home loan. These include enabling consumers to use the website to generate key
fact sheets for home loans and advising them of this functionality. The maximum
penalty for an offence is 2,000 penalty units ($220,000).
The Wesley Mission and the ABA both raised the question of whether
financial institutions would be prosecuted if a technical problem caused the
key fact sheet tool to go down for a short period. The ABA stated that the only
option for a bank to escape prosecution in these circumstances would be to shut
down its website until it could restart the tool.
In evidence, the committee asked Treasury how it would manage unintended
consequences from the Bill in relation to the buffers:
Often in these sorts of situations, there is a question of
how far you can go in giving everyone the comfort they want in relation to the
bill. Usually what has happened in previous situations where clarity has been
sought in relation to the credit act is that ASIC has been able to resolve it
by providing regulatory guidance about how it will interpret it and give
lenders comfort that if they meet the standards or comply with ASIC's
regulatory guidance then they will not be at risk of any enforcement action.
That model has happened repeatedly in the past and there is no reason why it
would not happen here.
Although this reply was given in a specific context, it is applicable to
the Bill generally. The committee accepts Treasury’s evidence that an
unintended consequence, such as in relation to proposed section 133AC, can be
best dealt with through common sense regulation by ASIC.
The committee anticipates that consumer credit regulators will take a
common sense approach to enforcing this provision.
Definition of a credit limit increase invitation
One of the concerns put forward by industry was that the scope of the
definition of credit limit increase invitation was too broad and would prevent
banks discussing card use with their customers in a factual way.
Proposed section 133BE contains the meaning of a credit limit increase
licensee makes a credit limit increase invitation, in
relation to a credit card contract, if:
licensee gives a written communication that relates to the contract to the
consumer who is the debtor under the contract; and
or more of the following conditions is satisfied in relation to the communication:
communication offers to increase the credit limit of the contract;
communication invites the consumer to apply for an increase of the credit limit
of the contract;
licensee gave the communication to the consumer for the purpose (or for
purposes including the purpose) of encouraging the consumer to consider
applying for an increase of the credit limit of the contract.
Further, subsection 133BE (6) provides for the regulations to make
provisions that apply to determining whether a written communication is covered
by the definition in subsection (5).
Lenders argued that the legislation should refer to offers rather than
invitations, as the definition of invitation was undefined and potentially too
The ABA submitted that the definition contained in the Bill:
... not only includes express offers and invitations to
increase the limit of the contract but also has the practical effect of
capturing any communication to the consumer that has the purpose of encouraging
the customer to consider applying for an increase.
The ABA further submitted, and this concern was echoed by Abacus
and GE Capital, that it could be
interpreted as prohibiting more general communications around credit card
limits, credit services and general marketing materials.
Abacus advised the committee that ‘any kind of communication could potentially
be seen as some sort of invitation’.
A number of lenders stated that the extent of these provisions would
mean that they would not contact customers to offer them a temporary credit
limit increases in emergency situations, including natural disasters. The
Australian Bankers’ Association told the committee that:
Under these laws, as we understand them from our discussion
with the government – we are still yet to see the regulations that will provide
the details – we understand that we will not be in a position to say to
customers, ‘If you have been affected by the recent natural disaster we can
offer you all of these measures, including a temporary increase to your credit
However, on questioning they conceded that there is nothing in the
legislation which would prevent lenders advertising at large to people affected
by disaster to advise them of the availability of increased credit limits.
Consumer groups supported the extent of the definition, especially given
the particular concerns around these offers, discussed in Chapter 1.
Treasury advised the committee that consumer groups had emphasised in
consultations that there should not be any retreat from this policy through the
regulations. They further commented:
It is always their concern that the banks will somehow twist
the words to twist the intention of the legislation so that they still get that
sort of behavioural change by the client, and that they could get through one
of these letters that they previously sent out. We do not think that the law
will allow them to do that.
The definition of a credit limit increase invitation does not prevent
general advertising. In the case of natural disasters such as those seen
recently it would presumably be more effective to develop television or radio
advertisements than write to a customer who may not be living at a house that had
been affected by the disaster.
One of the concerns in relation to these provisions was that the
definition would need to be clarified in time for lenders to comply with the
legislation. As Treasury are currently consulting with parties on the
regulations, lenders will soon be in a position where they understand the scope
of what is to be included in the definition.
Finally, this aspect of the legislation was of the most concern to
consumer groups. Given the importance of these provisions to keep consumers out
of financial difficulty, the committee supports the current definition, which
as Treasury pointed out will not allow banks to ‘twist the words’ of the
prohibition. This support is given on the understanding that Treasury will work
with parties on the development of regulations to ensure that the precise scope
of what constitutes a credit limit increase invitation is understood by all
Does the default buffer amount to ‘free credit’?
Proposed sections 133BH to 133BN introduce two buffers for credit cards.
The first is the default buffer, which automatically applies to a credit card
unless the consumer opts out. Under proposed section 133BI, this is set at 10
per cent of the credit limit of the contract. The second is the supplementary
buffer, which applies on top of the default buffer. Further detail on the
supplementary buffer will be developed in the regulations. The consumer must
opt in to the supplementary buffer.
The importance of these buffers is that, under proposed section 133BN,
financial institutions can only apply fees for exceeding a credit limit if the
consumer uses the supplementary buffer. In other words, they must opt in to the
risk of incurring fees for exceeding their credit limit. Making the assumption
that most consumers will neither opt out of the default buffer nor opt in to
the supplementary buffer, then the usual scenario will be that consumers will
not be charged fees for exceeding their credit limit, although whether they are
allowed to exceed their limit will be at the discretion of their lender.
In other words, under the usual scenario, lenders will have less revenue
from these fees because they will be required to cease credit when a consumer
reaches their limit, instead of providing credit and charging a fee.
The buffers were introduced as a product of the consultations. The aim
was to reduce the incidence of consumers incurring additional credit card fees,
but at the same time giving lenders some discretion so that consumers are not
placed in embarrassing situations when they attempt a transaction that puts
them marginally over their credit limit.
The ABA raised the issue of whether these provisions in fact turned the
default buffer into an additional 10 per cent extension to consumers’ credit
limit. The ABA was also concerned that consumers, once they were aware of the
default buffer, would demand this from their lender:
The ABA submits that the Bill, by entrenching the 10% default
buffer, in effect mandates that a bank has to consider offering a consumer more
credit. It may be questioned whether this is the Government’s intent and
whether these are the types of messages, in relation to consumer credit, that
the Government wishes to convey to consumers.
The inclusion of the default buffer in the Bill is also
likely to raise customer expectations that they have a right to a 10% buffer on
their credit card contract. This may result in increased complaints by
customers whose over-limit transactions are declined by the credit provider and
do not have access to the 10% default buffer. There is also a further risk that
customers will assume their credit limits are 10% more than as stated.
The formal provisions in the Bill do not make any statement about
whether lenders are required to extend credit into the default buffer. Proposed
section 133BH merely states that lenders are not to approve the use of a credit
card in excess of the credit limit, or the relevant buffer, whichever applies.
However, Note 2 to paragraph 133BI(2)(b) states:
The fact that the default buffer applies to a credit card
contract does not of itself result in the licensee being obliged to approve any
use of a credit card in excess of the credit limit for the contract.
The ABA acknowledged this note in its submission.
The committee raised this issue in evidence with Treasury, who replied
that they had attempted to work through this matter with industry but had now
reached an impasse:
We are aware of that, and that was something that was
discussed in the consultations, particularly in relation to the exposure bill.
I suppose it is fair to say there is a difference in legal interpretation as to
whether or not the default buffer is automatic. It is a question of the
interpretation of section 133(b)(i). Our view is that that does not create an
automatic default buffer and the lender still has the discretion whether or not
to offer a buffer—and the explanatory memorandum reflects that intention ...
Yes, but it is fairly explicit; that is the problem. Whether
it is an abundance of caution being taken by the advisers in the banks or—I am
not sure, but we believe that we are correct in the law that we have done and
have expressed that in the explanatory memorandum, and we have spoken to the
people who are concerned about this numerous times and explained this to them.
I suppose we have reached a position where they do not accept that.
The note would appear to remove all reasonable doubt and the committee
concludes that the ABA has not raised a reasonable concern. There is probably a
greater risk that consumers may believe that the default buffer is extra
credit. However, this risk largely depends on how the changes are communicated
to consumers. Mostly, lenders are well placed to manage this risk through
communications with their clients, either one to one or through advertising.
There is probably also a role for ministers, Treasury and regulators to make
clear at announcements that the default buffer is not ‘free credit’.
The provisions in the Bill do not amount to ‘free credit’ and lenders
are well placed to manage the risk that consumers might mistakenly believe it
to be so. There is also a role for government and its representatives to ensure
that it does not inadvertently give this impression. Similar to many other
reforms, good communication by both government and industry will be necessary
for effective implementation.
Are the buffers too complicated?
A number of stakeholders on both sides of the debate expressed concern
about the complexity of the buffers. The AFC provided background on how the
buffers were developed during the consultations and the dual aim of preventing consumers
being charged a fee for going over their credit limit but at the same time
giving lenders some flexibility with their customers:
So we looked for a halfway house where customers retained
control and had the ability to consent to be able to go over the limit and
potentially incur a fee, but financiers could retain discretion in terms of
those temporary excesses where generally fees might actually be waived. What we
have ended up with, far from the simple kinds of outcomes we were looking for,
is something incredibly complex that creates or entrenches in the law this
concept of a default buffer, which was really about a customer relations
exercise in terms of people going out for dinner and not being embarrassed
because suddenly their credit card was bounced. So, based on that customer's
position and their overall financial situation, it was determined to be
appropriate to let them exceed the limit, and the fee charging and waiver would
The Consumer Credit Legal Centre and the ABA agreed that the buffers
were too complicated.
The Wesley Mission took an alternative view. They stated that the
default buffer was simple and served the interests of both consumers and
lenders. For example, the consumer benefits because a lender may add interest
or fees that was not expected, or a transaction may fall into a different
period than expected. However, they did not support the supplementary buffer
and it would be simpler if it were replaced by consumers requesting an increase
in their credit limit.
In evidence, Treasury confirmed that the buffers were the product of
consultations and that some features were inserted to make the arrangements
In subsequent discussions lenders and consumer groups agreed
it would be consistent with the policy and in the best interest of consumers to
allow a small default buffer in which consumers could exceed their stated
credit limit as long as the consumers were not charged a fee for doing so. This
was reflected in the exposure draft bill that was released in March. Based on
comments from the exposure draft bill, the bill was also further amended on
this issue to incorporate a further supplementary buffer above the default
buffer for which lenders could actually charge a fee. The introduction of a
supplementary buffer is likely to result in additional costs and compliance
burdens for those lenders who offer it with their credit cards but may be of
benefit to consumers who have a specific need for short-term credit—for
example, where they might be travelling overseas. Allowing this flexibility as
an option was considered to be an appropriate outcome.
Treasury makes an important point in that the supplementary buffer does
not have to be offered automatically. It is available if banks wish to offer
it. Assuming that consumers do not change their initial settings on their
accounts, the supplementary buffer will not affect them and only the default
buffer will apply. The committee agrees with the Wesley Mission’s comment that
the default buffer is ‘clear and logical’. In the opinion of the
committee, this is partly because it formalises current practice.
Further, the supplementary buffer appears to be the sort of feature that
requires some premeditated conduct on the part of the consumer to implement,
which is precisely the Government’s intention behind the Bill. In other words,
while credit should be accessible, consumers should also be encouraged to give
serious thought before they change their credit arrangements.
The fact that the buffers are the product of consultations is also
significant. As the AFC acknowledged, the Government started with the simple
idea of consumers not going over their credit limit and being charged a fee.
But because various parties wished to modify it, it is only natural that a more
complicated system would result.
The buffers in the Bill provide an appropriate layer of regulation to the
use of fees and limits with credit cards. The initial layer with the default
buffer gives consumers and lenders some flexibility in managing their credit
limits while achieving the policy aim of reducing the incidence of limit fees.
The second, supplementary layer is more complex, but it will have the important
effect of encouraging consumers to think about their situation and how they use
their card before taking on more credit.
Effect on balance transfer cards
Transfer balance cards are those that offer a six month zero interest or
low interest rate on credit balance transfers. The ABA raised a concern that
these cards might cease to be offered under the new legislation.
The ABA spoke of the importance of these cards and the risk that they
would be discontinued:
The banks offer those products because they are keen to
attract new customers, and that is part of competition in the banking sector,
but those products also allow customers to transfer existing debt to being a
zero-interest debt and to being able to pay that off their credit card. It
actually can allow customers to manage their debt much more effectively. Those
products are going to be effectively banned under what is being proposed here
in the legislation.
However, the ABA also stated that the requirement in the Bill for credit
balances at a higher interest rate to be paid off first meant that the
commercial reality was that people would not be able to transfer or consolidate
debts onto a low interest rate card. They told the committee:
... effectively the government is bringing in a form of price
control on how debt is paid off on credit cards. If that automatically attracts
to the debt incurring the highest interest rates that will mean it is just not
commercially viable for banks to offer those low or zero interest rate balance
Consumer groups pointed to the fact that these balance transfer cards
generally resulted in the poorest consumers taking on more debt. Wesley Mission
told the committee:
A number of products like these low-interest transfers are
effectively resulting in a situation where one group of consumers, usually the
poorest, are subsidising another group – those who are perhaps more financially
astute, better educated and generally better off.
The Consumer Action Law Centre added to Wesley Mission’s comments,
saying of balance transfer cards:
They benefit a small minority who actually have enough money
to go out and spend a lot of money, get a transfer and quickly pay it off. They
seriously disadvantage people who are attracted to them because they cannot pay
off their credit card debt. I have no problems in seeing the end of balance
transfers that trap people who are in financial stress.
The committee does not regard balance transfer cards as a particularly
attractive product. Effectively giving more credit to people with a credit
problem is not a constructive approach. The committee is happy to leave it to
the market to decide whether to offer these cards under the new arrangements.
The Bill is a balanced package that will provide consumers with more
relevant information and help them obtain credit products more suited to them
and their finances.
Some lenders’ traditional sources of revenue, such as limit fees and
prolonged interest payments by consumers who are in financial distress, will be
curtailed by the Bill. Under these circumstances, lenders’ fee structures may change
and fees may be spread more evenly across their customer base. But if it comes
at the price of fairer dealings for consumers and less temptation for
individuals to fall into a credit trap, then it shall be our community that
reaps the profit.
||Subject to the other recommendation in this report, the
House of Representatives pass the Bill.
Mr Craig Thomson MP
14 June 2011