Chapter 3
Conclusions
3.1
The Committee is not able to support the passage of the ASIC
(Fair Bank Fees and Charges) Bill 2008. In reaching this conclusion the
Committee took into account the following issues raised by its inquiry into the
bill.
Drafting and legal considerations
3.2
The bill raises difficult legal questions that could not be
resolved by the Committee's inquiry.
3.3
The Committee's principal concern is that the bill as drafted
might be ineffective if the financial institutions chose to describe the charges
that are the subject of the bill as fees for service. By so doing the
institutions might be able to avoid the intent of the bill. The definitions
contained in Clause FAA are therefore of concern. Possible solutions to this
problem are also problematic, for example, if the definitions were broadened
genuine service fees might come within the scope of the bill and this would
amount to price control, which the Committee cannot support. In any event, evidence
from the ABA confirmed that the passage of the bill could be expected to lead
to expensive and protracted litigation.
Regulation of consumer credit
3.4
The bill if passed would introduce an element of regulation in a
relatively small segment of the consumer credit market. Default charges are not
unique to the financial institutions. Many industries, including telecoms and
utilities, impose charges for customer default. It would be better public
policy if default charges were dealt with in total rather than industry by
industry.
3.5
While it might be argued that this would effectively leave
problems unaddressed, this is unlikely. Regulation of consumer credit is both
topical and is a dynamic area. The Government now has before it a major report
of the Productivity Commission, which recommended that there should be a new
national generic consumer law that, among other things, addresses unfair
contract terms. Firstly, the Commission has listed several features that should
be taken into consideration in defining and applying unfair contracts.
3.6
Secondly, the Government has produced a policy Green Paper on
financial services and credit reform and COAG has very recently agreed that the
federal government should take over the regulation of consumer credit. If the
bill were passed it could be inconsistent with the wider legislative framework
being developed by the Government.
Market for default charges
3.7
From 2000 or earlier till mid-2007, the incidence and quantum of
the charges covered by the bill increased significantly. This, together with
consumers' initial assumptions that they would not default on their contracts
with the financial institutions and their associated ignorance of the default
charges they would incur as a result of any default, suggests that there was
not a competitive market in relation to default charges.
3.8
In the time since mid-2007, which was when CHOICE and the
Consumer Action Law Centre launched a 'Fair Fees' consumer campaign, there has
been some movement toward fewer and lower default charges. Some new products
have been developed; most institutions have ceased to impose one of the most
egregious default charges (the inwards cheque dishonour fee); and charges
overall have been reduced.
3.9
The above changes suggest that at least some financial
institutions may consider that they will be able to achieve a competitive
advantage by reducing default charges or by introducing products that enable
customers to avoid or minimise the charges.
3.10
Despite the record of Australia's financial institutions for most
of this decade, but in the light of more recent developments, it could be
argued that for the parliament to move now to regulate default charges would be
premature. A competitive market may be developing but existing and future
products need to be better marketed and promoted to their target demographic.
3.11
The Committee and other interested parties would be in a better
position to make a judgement that the market is operating efficiently if more
data were available. In particular, the Reserve Bank of Australia could collect
and publish detailed information on the charges that are covered by the bill
and the Committee will so recommend.
Recommendation
3.12
The Reserve Bank of Australia should collect
and publish annually in its monthly bulletin detailed data on the incidence and
quantum of default charges.
Social considerations
3.13
Although it is unable to support the bill, the Committee is
concerned about the social effects of default fees on consumers, particularly
on those on low incomes and on welfare recipients. There was strong anecdotal
evidence that in some cases at least the impost of high default fees is
marginalising people who are already struggling to feel they belong in
Australian society. The Committee would be most concerned if the apparent past
indifference of institutions which themselves benefit from a strong regulatory
environment were to continue.
Senator Annette Hurley
Chair
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