Fair Trading Amendment (Responsible Credit) Bill

Debate resumed from 14 September 2005.

[Pursuant to a resolution this day the Honourable Jane Aagaard, the Speaker of the Legislative Assembly of the Northern Territory, was conducted to her chair on the dais to the right of the President.]

Reverend the Hon. FRED NILE [11.17 a.m.]: The Christian Democratic Party supports the Fair Trading Amendment (Responsible Credit) Bill, which was introduced by Ms Sylvia Hale. This is a down-to-earth, practical bill that will amend the Fair Trading Act to impose obligations on credit providers, additional to those obligations under the Consumer Credit (New South Wales) Code, with respect to credit card contracts and increases in credit card limits. The bill will ensure that the credit provider must not enter into any credit contract or increase the credit limit or amount of credit under an existing credit contract if the credit provider knows or ought, after reasonable inquiry, to have known that the debtor does not have the capacity to pay the amounts required under the contract or would incur substantial hardship in paying such amounts. There are other aspects of the legislation that the Christian Democratic Party also supports.

I am sure all honourable members are continuously offered credit cards by banks and credit card providers. I suppose they secure our names and addresses through mail order companies that buy mail lists. The lenders do not make an inquiry as to whether we already have a credit card or any number of them; they simply offer us another credit card. We then constantly get offers to increase our credit levels, which is a temptation for everyone. The credit provider does not check the ability of people to service their credit card loan. As a minimum, most people are struggling to pay just the interest but many cannot even do that. In a large number of cases it is probably impossible for them to pay off the principal of their credit card loan.

It has been estimated that in some cases people could take 100 years to pay the total amount owing on their credit cards. If we were to pass this bill it would send a message to credit card providers and the banks that the House believes they have gone too far in their efforts to recruit new customers without assessing their ability to pay. The credit companies and banks apply no hardship or income tests. They do not consider whether people have existing loans.

Visa International reports that about only 35 per cent of all credit card holders pay interest on their debt. Those able to pay off their credit cards within the interest-free period are not obliged to pay any interest at all. For the fortunate 65 per cent who accrue no interest, the service offered by credit card companies is effectively free. But for the other 35 per cent the service is very expensive indeed. The interest burden on the $21 billion of debt on which interest is being paid is being borne by the bottom 35 per cent of all cardholders—the customers who can least afford to bear that burden. So the poorer one is, the more one pays. I urge honourable members to support the bill.

Mr IAN COHEN [11.21 a.m.]: I support my colleague Ms Sylvia Hale, who led for the Greens in the debate on the Fair Trading Amendment (Responsible Credit) Bill. It was interesting to read in this morning's Australian a story about Aboriginal people on Cape York who have been approached by lending establishments, including the Commonwealth Bank, and cajoled into purchasing four-wheel drive vehicles worth more than $35,000 when they live on benefits of $200 a week. That is an extreme case, but the bill attempts to introduce a degree of control into the area of consumer debt.

Growth in consumer debt and easily available credit are phenomena that not only have become acceptable but are being touted as desirable. However, this has considerable social costs. Banks advertise with slogans such as "Good things come to those who don't wait". The attitude being sold is buy now and think about paying later. We have gone from being a society that accepted consumer debt as a last resort to one that is happy for it to be a first choice. Clive Hamilton and Richard Denniss of the Australia Institute examined this pattern in their book Affluenza, a condition they defined as:

The bloated, sluggish and unfulfilled feeling that results from efforts to keep up with the Joneses; an epidemic of stress, overwork, waste and indebtedness caused by dogged pursuit of the Australian dream; an unsustainable addiction to economic growth.

They said:

Debt is an essential element of the cycle of affluenza. It allows us to act on the desires created for us by the marketers, free of the banal constraint imposed by our incomes.

Young Australians have never known anything other than a deregulated financial market in which banks and new financial institutions fall over each other to lend them money. They have never had to be polite to a bank manager in order to secure a home loan … They have never had to wonder whether their application for a credit card will be successful. And most have never left work with a pay packet full of $20 bills to tide them over until the next pay day.

We all know that the size of mortgages has increased significantly in the past decade. But spending on consumer goods, financed by credit, has also increased extraordinarily. The rise in personal debt increased fourfold between 1996 and 2004. While this is great news for financial institutions, which profit enormously from the interest paid on debt, the social costs are very grave. The growth in consumer debt has been accompanied by a sharp rise in the number of personal bankruptcies. Of the 21,000 Australians who filed for personal bankruptcies in 2003-04, 74 per cent were consumers rather than businesses. The most common age group of those who filed for bankruptcy was 22 to 44 years, but there have been reports of 18-year-olds filing for bankruptcy after being unable to pay mobile telephone bills of more than $5,000. The number of people citing excessive use of credit as their reason for declaring bankruptcy has more than doubled in the past five years, and is now more than 21 per cent. This compares with the less than 3 per cent who cited gambling as the cause of their bankruptcy.

Australians have an average of 0.75 credit cards per person compared with 0.27 in Europe. However, credit card ownership here is still significantly less than the 2.23 credit cards per person in the United States of America. According to Clive Hamilton:

Debt is no longer simply the result of persuading people to spend more than they earn: it has itself become a consumer good that needs to be marketed. Banks have used a number of strategies to encourage people to "spend up

big" on their credit cards. First, they increased fees and charges to encourage consumers to discard their cheque books and debit cards, which were linked to and constrained by savings accounts … Having convinced people it's cheaper and more convenient to shop and pay bills with credit cards, the banks then set about increasing their customers' credit card limits, often without asking them. Safe in the knowledge that they have a large credit limit—"just for emergencies"—consumers are then able to begin the process of disconnecting their weekly spending from their weekly income. Accumulating a credit card bill of a few thousand dollars is neither difficult nor time consuming. Nor is it of concern to the banks. On the contrary: their best customers are the ones who carry their balances forward. The minimum monthly repayment required by the banks is designed to maximise the amount of interest paid on the remainder, not to minimise the time needed to repay the loan.

It is entirely irresponsible for banks and other financial institutions to continue to encourage this debt and overconsumption. It is harmful to families, who end up with debt burdens and ever-increasing interest; it is damaging to individuals, who may end up bankrupt after deluding themselves about the realities of upfront credit; and it is detrimental to the environment, as it results in overconsumption, encouraging people to buy more stuff they do not need and creating more waste.

I support the bill introduced by Ms Sylvia Hale and commend it to the House. It is a timely effort to address the reprehensible direction that society has moved in, goaded by supposedly responsible establishment institutions such as banks. It is high time we took a second look at these issues, and the Fair Trading Amendment (Responsible Credit) Bill is certainly a significant step in the right direction.

The Hon. AMANDA FAZIO [11.26 a.m.]: I oppose the Fair Trading Amendment (Responsible Credit) Bill. In doing so, I do not wish to make light of the issues Ms Sylvia Hale raised when introducing the bill. I believe it is important to examine the way in which lending institutions continue to provide credit opportunities to people, regardless of their capacity to make more than the required minimum repayments. Honourable members will be aware that the interest rates levied on home loans or personal loans are at least half, if not a third of, the interest rates offered by major credit institutions. Some department store credit cards have interest rates of 20 per cent or even more. These institutions are making huge amounts of money from credit card transactions.

The banks and financial institutions claim that home loans are the backbone of their profitability. I think it is about time they addressed the question of why there is a huge discrepancy between the interest rates charged on home loans and on credit cards. I know that the banks must have some capacity to absorb the cost of defaulters, but they would be able to minimise that cost if they acted more responsibly in offering credit to people. Probably three times a month I open my letterbox and find unsolicited offers for pre-approved credit cards from major financial institutions with which I have no regular transactions. If I accepted all those offers—I would need about four wallets to carry all my credit cards—I would spend every cent I earn making the minimum repayments. If I racked up credit to the maximum I would enjoy a very good lifestyle for about three months but I would certainly never be able to pay the bills in total.

This form of unsolicited credit offer is the key for some people who are not particularly good at managing their finances. I am sure everyone would agree that currently economic pressures on families are very strong. The cost of petrol has increased, Federal Government assistance for families has been cut back and the cost of child care continues to increase. Young families with a mortgage and children in child care regard these credit offers as a lifeline when they open the letterbox. They might have been doing the family budget for a month and they might think, "How am I going to balance this? How am I going to balance that? Maybe if I took up this offer of an extra credit card I could pay the electricity bill and we will worry about it later. Somehow it will sort itself out." As honourable members would be aware, particularly if they have complaints from constituents, it does not sort itself out in the end. Some people find themselves in a terrible debt hole that they cannot get out of. The way the financial institutions bandy about the advantages of credit cards, credit opportunities and lines of credit is a little bit like confetti raining down on people at a wedding.

I do not agree often with Ms Sylvia Hale, but this is an issue that needs to be addressed. However, the crux of the matter is that New South Wales does not control all financial institutions in Australia. There is no point in our passing this type of legislation because there is nothing to stop financial institutions in other States from directly mailing people in New South Wales with offers of credit opportunities. Consumer credit is regulated nationally, therefore the National Ministerial Council on Consumer Affairs should examine how to deal with this problem on a national level. Financial institutions are regulated nationally and they operate nationally. It is pointless saying that we will introduce super strict regulations into New South Wales. If people living in the same area as Mr Ian Cohen—on the North Coast—were financially desperate, they would go over the border to take up offers made by financial institutions in Queensland. Although there is merit in the legislation, passing the bill will not fix the problem.

The way to fix the problem is to ensure that action is taken nationally. It is time that we put it back onto the banks and other financial institutions that are sacking staff left, right and centre, and closing branches. They told us they were closing branches because electronic funds transfer, automatic teller machines and Internet banking would provide the same level of service, but they now charge massive fees for people who use those services more than once or twice a month. The banks are raking in the money. It is about time they stopped trying to profiteer off the back of ordinary working people who are desperate for some way out of the stressful financial situation in which they find themselves. It is time they stopped posting record profits and, instead, started being more responsible in the way in which they offer credit. I urge honourable members not to support the bill, but to support its principles so that this issue is taken up nationally to ensure that banks and other financial institutions do the right thing by the people of Australia.

The Hon. HENRY TSANG (Parliamentary Secretary) [11.33 a.m.]: The Fair Trading Amendment (Responsible Credit) Bill, which was introduced by the Greens Ms Sylvia Hale, aims to transfer a fair and reasonable level of responsibility and accountability back onto credit providers. This proposal referred specifically to credit cards and store cards. It is relevant to note that this private member's bill draws on research undertaken by the Office of Fair Trading in 2001 when credit card issuers opened up their credit card assessment practices and processes to the scrutiny of the Department of Fair Trading, as it was then. The report to the Ministerial Council on Consumer Affairs was used for public consultation. Since that time States and Territories have worked to build on research to provide a uniform response. Consumer credit is regulated by the Consumer Credit Code, which is national uniform legislation underpinned by the Australian Uniform Credit Laws Agreement of 1993.

Under this agreement each jurisdiction agrees to maintain uniformity in respect of legislation regulating consumer credit. The Consumer Credit Code governs all personal, domestic and household credit transactions in Australia. Support for the bill will erode uniformity under the Consumer Credit Code. However, the Government notes the concerns that motivated the bill. I thank honourable members for their comments and their important points. The Government acknowledges and supports the principles that motivated the introduction of the bill. We are working with other States and Territories to address these concerns. We share the concern expressed about lending practices used by banks. However, the bill breaches the uniformity agreement on credit laws, which the States and Territories worked so hard to achieve. The bill introduced by Ms Sylvia Hale addresses these practices, but it is flawed because it seeks to amend the New South Wales credit legislation and, therefore, brings New South Wales into conflict with the uniformity agreement on consumer credit, which was signed by all jurisdictions. The Government opposes the bill.

Ms SYLVIA HALE [11.36 a.m.], in reply: I thank honourable members for their contributions. The Hon. Dr Arthur Chesterfield-Evans highlighted the excessive fees that card-issuing institutions are charging and the profits they are making, both of which underpin our introducing the bill. As Reverend the Hon. Dr Gordon Moyes noted in support of the bill, December 2004 was "a bumper month for the use of plastic, when 121.2 million credit card purchases were made." But as he further noted, a survey showed that "2.5 million Australians overspent on their own estimates last December, by an average of $750". I thank Reverend the Hon. Dr Gordon Moyes for bringing these figures to the attention of the House. I note with regret, but not with surprise, that the Opposition opposes the bill. The Hon. Melinda Pavey made much of the fact that people must take responsibility for their actions, and that their mounting credit card debts were their own fault.

The Hon. Melinda Pavey expressed great concern that the bill would encourage a nanny State. But as I pointed out earlier, the interest burden on the $28 billion currently owed on cards falls on the bottom 35 per cent of all cardholders—customers who can least afford to bear the burden. No-one willingly pays interest on a credit card debt. The 65 per cent of cardholders who do not pay interest have the financial resources to pay off their debt within the required time. The bill is aimed at the 35 per cent who cannot afford to pay that interest and who, having been lured into borrowing more than they can afford—often by unsolicited offers to extend their credit—are caught in a downward spiral of exorbitant interest payments. It becomes harder and harder, and progressively more difficult for them to pay off what originally might have been a relatively small loan, but, thanks to exorbitant interest payments, soon blows out into a totally unmanageable debt.

The Greens are concerned that marketing strategies of the powerful financial institutions are directed at those who are most likely to be less financially educated or less financially able to withstand the tempting offers made by credit card providers. It is a heart-rending fact that the poorer one is, the more one is likely to pay. Rather than being seen as encouraging a nanny State as Ms Pavey suggests, this bill expresses the Greens' determination to address the problem and to curb at least one practice by financial institutions that preys upon people's vulnerabilities.

Again I note that the Government opposes the bill, and again I cannot suggest that I am surprised by that. The Government is given to mouthing fine sentiments and to saying things to win popular approval, but when it comes to actually doing anything and addressing a problem, it is consistently found to be seriously wanting. It is no surprise that among the community at large many people express the view that at times they find it very difficult to distinguish between Labor and Liberal policies on many issues. But it is surprising that Government members oppose this bill, given that a large number of members of the Australian Labor Party have spoken out publicly most strongly in support of curbing the worst excesses of credit card issuing institutions. I would hope that on occasions Government members could finally adhere to their principles and at least speak out in support of this bill, but I note their singular failure to do so.

The supposed justification that the Government offers for opposing this bill is that it is better to wait until there is agreement among all the States in line with the 1993 uniformity agreement. It is a pity that this Government does not want New South Wales to take a leadership role when it comes to tackling crippling levels of personal debt, but obviously the days of being the so-called premier State are well and truly over.

Reverend the Hon. Fred Nile: The other States could copy our bill.

Ms SYLVIA HALE: Indeed, they might. In fact the Australian Capital Territory has already taken the lead. In 2002 it adopted the Fair Trading Amendment Bill, which was introduced by the then Greens member of the Australian Capital Territory Assembly, Ms Kerrie Tucker. The Australian Capital Territory has not found it necessary to wait but, rather, it has been able to seize the initiative and act. Despite that, this Government, knowing what the problem is—and there can be no question that Ms Fazio and Mr Tsang know what the problem is—still declines to act.

The Hon. Henry Tsang: We need a national approach.

Ms SYLVIA HALE: I believe it is a really sorry comment that a Government that has been in office for more than 10 years should be so reluctant to act and is so slow and tardy. There is no evidence that this Government has made any moves at the national level. I am sure we will wait for a long time for it to do so. The fundamental premise of one of the arguments advanced by Ms Fazio is that some of the credit card issuing institutions are national institutions and there is nothing to stop people in this State being flooded by offers from institutions that are located in other States. But that argument falls to the ground because we know that any institution from another State that markets its products in this State is bound by the laws of this State. If a financial institution provides unsolicited credit advances without any endeavour on its part to check the ability of the borrower to repay the loan and if this legislation were in force, that financial institution would be in breach of the laws of this State and would be subject to penalties. The argument advanced by Ms Fazio is flawed from its very beginning.

Uniform agreement has not forced the Government to keep up with other States in many other respects. For example, the Government's levels of spending on mental health and public housing are abysmal. The Government has felt no need in those instances to maintain a consistent approach. For the Government to claim now that, in the interests of national consistency and uniformity, it cannot support this bill is just a specious argument. One reason for the Greens pursuing this bill at this time is that Christmas is approaching. As I am sure we are all aware, Christmas is a time of enormous pressure upon the community to spend, spend, spend, with the resulting credit binge. Like all previous binges, the forthcoming event will be followed by a hangover when people face up to the consequences of those pre-Christmas pressures. The Greens have introduced this bill to deal with a very real problem in our society.

The Banking and Financial Services Ombudsman has reported that last year credit cards were the most complained about financial product in New South Wales, representing 81 per cent of all consumer finance complaints. As well, financial counsellors reported a sharp increase in the number of people with levels of credit card debt that they have no hope of ever managing to repay. Crippling credit card debt is not a new issue for this Government, nor for many Australian Labor Party members, as Ms Fazio indicated in her remarks this morning. But it is interesting how many Labor members have spoken out about the problem and yet how significantly this Government has failed to respond. Nearly five years ago, in December 2000, the then Minister for Fair Trading, John Watkins, announced that he would move to tighten credit laws and credit practices in New South Wales. When he made that announcement his plans received very strong support from a number of organisations. The Council of Social Service of New South Wales [NCOSS] stated that it strongly endorsed the proposals by the Minister to tighten credit laws and practices in New South Wales. NCOSS stated:

It is particularly disturbing to see the sometimes slick, sometimes heavy-handed inducements being used to trap vulnerable people into higher credit card limits and subsequent debt.

NCOSS is becoming seriously alarmed at the potential for massive social and personal harm.

It is particularly [the working poor], with high rental or mortgage costs, low wages, and significant exposure to rising interest rates and credit card debt, who are at grave risk.

There should be an immediate ban on unsolicited offers of credit card and increases in credit card limits.

NCOSS also supported the ban on issuing credit cards on the Internet or providing instruments of credit through online technology. That was five years ago, yet this Government says that it is still waiting on national uniformity. This Government is failing to act when it knows exactly what the problem is. The former Minister for Fair Trading is not the only member of the Labor Party who has recognised what the issues are and has spoken out against them. Early last year the honourable member for Heathcote, Paul McLeay, stated in the lower House:

On the other side of the coin, Labor has consistently stated that regulatory intervention is required where the market forces are demonstrably incapable of keeping fees in check.

That is Labor to a tee. Labor members state the problem, but they never act on the problem. He reiterated the line that a Federal Australian Labor Party [ALP] government would direct the Australian Competition and Consumer Commission to monitor bank fees and charges and provide some discipline for the banks. He went on to state, "There are real issues for families that are already grappling with record amounts of household debt." Speaking for those who call themselves Country Labor, the Labor member for Murray-Darling, Peter Black, noted:

People in the bush are the hardest hit financially and are finding it hard to pay off their credit card debts.

Tanya Gadiel, the Labor member for Parramatta, speaking on moves to curb bank fees, suggested:

It has become glaringly obvious to anyone living in the outer suburbs of Sydney or in rural New South Wales that the banks are failing to live up to their responsibility in discharging their social obligations to this State's families and its communities … the challenge of spiralling household debt and the further burden of credit card and other bank fees demand a proper response by the Federal Government.

Of course, her comment is typical of this State Government and its attitude: it makes pious statements, it wrings its hands, it deplores the situation and then it says it is all the Federal Government's fault. Of course, rather than seize the initiative and actually do something, the State Government passes the buck to the Federal Government, knowing full well that the Federal Government also will do absolutely nothing. The ALP policy in the lead-up to the Federal election less than a year ago was that:

Banks would be forced to give customers credit card "health warnings" and face increased performance monitoring.

On 20 June 2004 the Age reported:

… credit card warning will require banks to include a special section on the account statement informing the consumer how long it would take to pay off the debt if they made only the minimum repayment. The ACCC would be asked to formally monitor credit card fees and charges.

The purpose of all this, Labor claimed at the time, would be to make banking more affordable for families. The then leader of the Australian Labor Party, Mark Latham, stated:

[Banking] is not just a profit-making venture, it's an essential service to the people of this country.

The Government continues to say what the problem is and still refuses to act.

The Hon. Henry Tsang: We are developing a paper.

Ms SYLVIA HALE: The Hon. Henry Tsang said that the Government is developing a paper. It is five years since John Watkins announced that he was going to tackle the issue; the uniformity agreement was reached in 1993. Now, in 2005, the Hon. Henry Tsang said, "We are developing a paper." What a lame and pathetic excuse for inaction. The research has been done, but the Government has not introduced legislation. It is doing nothing.

The Hon. Henry Tsang: A national approach, that is what we do.

Ms SYLVIA HALE: We will wait till the cows come home before we see a national approach. The Australian Capital Territory has shown that it can act. It is possible for this Government to introduce laws, or to support this bill that will enable action to be taken now. But by saying it is waiting for uniformity, waiting until everyone agrees, we will have to wait and wait. It is the poorer members of the community, those who are stuck for cash, those who live a hand-to-mouth existence and are trying to feed their families and pay their electricity bills and increased water bills, who are the victims of credit card technology. They are the people who are susceptible to the lure of unsolicited increases in their credit limits. They are the people who are caught in the extraordinarily hard and oppressive downward spiral. Yet the Hon. Henry Tsang says that the Government is developing a paper.

The Federal Australian Labor Party's latest leader, the recycled Kim Beazley, that dumpling who rises again and again, in noting that "Australia's credit card was nearly maxed out", stated that his deep worry for Australia was:

Howard and Peter Costello are taking Australia to the edge of the debt cliff.

One might ask, what is New South Wales Labor doing to stop people falling over that cliff? Where are all the fine sentiments today, when the Greens propose legislative amendments that will offer some protection to people by imposing obligations on credit providers? As numerous financial institutions have noted over the past few years, credit card debt has ballooned, rising from $9.8 billion in November 1998 to $15 billion in 2000 and to $28.2 billion in 2004. As many members of this House have pointed out, this is not the time for the Government to sit on its hands. It is not the time for the Government to oppose an initiative that would deal in some slight way with some of the problems that confront the more vulnerable members of the community. This is the time for the Government to take action and support the Greens' Fair Trading Amendment (Responsible Credit) Bill.

Question—That this bill be now read a second time—put.

The House divided.

Mr Breen Mr Cohen Ms Hale Reverend Nile Ms Rhiannon Tellers, Dr Chesterfield-Evans Mr Jenkins

Ms Burnswoods Mr Catanzariti Mr Clarke Mr Colless Mr Costa Ms Cusack Mr Della Bosca Mr Donnelly Ms Fazio Mrs Forsythe

Miss Gardiner Mr Gay Ms Griffin Mr Hatzistergos Mr Kelly Mr Lynn Mr Macdonald Mr Obeid Ms Parker Mrs Pavey

Mr Pearce Ms Robertson Mr Roozendaal Mr Ryan Mr Tingle Mr Tsang Tellers, Mr Harwin Mr West

Question resolved in the negative.

Motion negatived.

Pursuant to sessional orders business interrupted.