- 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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