SUBJECTS: Consumer credit reforms, unfair contract terms, account switching, IMF report.
NARRATOR:
Chris Bowen is the Minister for Financial Services and Corporate Law; he spoke with our business editor Sheryl Bagwell.
CHRIS BOWEN:
I think that any gaol time is a very significant deterrent, two years is still a long time and of course the hope is that nobody goes to gaol, everybody does the right thing and gaol would only be used in the most egregious and extreme circumstances. But it is an important deterrent to have there as a last resort.
SHERYL BAGWELL:
Why then have you decided to exempt retailers and car dealers from these new laws when they also routinely offer loans and credit cards to consumers?
BOWEN:
There is an important balance to be struck here, compliance costs for business as against protection costs for consumers and I think we have got the balance right. Now in relation to retailers you've got a sales assistant who might simply refer a customer to another provider to a loan company who might be on the premises or elsewhere or might just hand on a form about a credit card. I think it's appropriate that we are a lot more careful about what restrictions we place and what compliance burden we place there, so I've exempted retailers - point of sale retailers - from the regime but the actual credit providers will of course be covered and we'll talk to industry in twelve months time to see how the laws have worked and whether there is a need for further regulatory reform at point of sale.
BAGWELL:
How do these new consumer laws stack up to other laws around the world?
BOWEN:
I think our laws are world's best practice; they are fairly tough when you look at what happens around the world and that's appropriate but they're also well balanced.
BAGWELL:
What about the issue of bank fees, I'm thinking here of excessive fees levied on the early repayment of mortgages. Now that's emerging as a real problem for consumers as they try to pay down there debts during this economic crisis, these are often hidden costs in mortgage contract documents is this sort of thing going to be picked up by these regulations?
BOWEN:
Well they'll actually be picked up by a different set of laws as it happens Sheryl. Not the laws that I introduced today, but laws that Minister Emerson introduced yesterday which were developed when I was Minister for Consumer Affair, which are unfair contract laws.
Now the unfair contract laws which will apply next year will mean that it's open for challenge by the regulators or individuals to say that a particular term in a contract is unfair and the courts will take into account the point that you raised as to whether it was transparent, well known and clear when the contract was entered into.
These laws have been in place in the United Kingdom since 1977 and in Victoria for about ten years and will apply across the board in Australia.
BAGWELL:
So mortgage holders will be able to challenge these sorts of fees in a simple and transparent way, I mean something that won't be too much of a burden for households to take on?
BOWEN:
Look I envisage that the majority of issues will be dealt with by the regulators - the ACCC and ASIC would begin the majority of cases but it'll certainly be up to others to begin the cases.
BAGWELL:
Speaking of the banks, the reports this week that suggest that a few people are switching banks despite the government's efforts to make it easier for people to do so, and to inject competition into the sector. The banks say that this is because customers are satisfied with their service, but others say on the contrary, it's because it is still hard for customers to switch banks, there's still too much red tape. Do you think the bank switching service the government introduced is working?
BOWEN:
Well we've certainly endeavoured to make it easier for people to change banks. I think the other elements you've highlighted – exit fees in particular are issues that people weigh up. So look this is not something that will change the landscape overnight but it is important in terms of competitive tension to ensure that people can change banks as seamlessly and easily as is possible.
BAGWELL:
Finally, the IMF has now followed the OECD in upgrading its outlook for the Australian economy this year and next. It's forecasting just a mild contraction this year and a sharp rebound on next year but it does say the outlook remains highly uncertain and there was more scope for the Reserve Bank to cut interest rates. Do you agree?
BOWEN:
Well look, that's a matter for the Reserve Bank – we don't tell the Reserve Bank how to do their job. We are very, very pleased with the IMF's report. They welcomed our fiscal stimulus. They specifically say the stimulus provided a sizeable boost to demand. They specifically endorse the payments to households and they specifically endorse our infrastructure investments as being appropriate so there's a series of ticks for the action we've undertaken, which we certainly welcome.
Of course both the IMF and the OECD have indicated that our forward projections and our plan to return the budget to surplus were appropriate despite criticism from some quarters that we were being too optimistic.
The IMF in particular noted that a few other advanced economies have adopted such a clear commitment as Australia in relation to returning the budget to surplus so these are two very positive reports for Australia and for the actions taken by the Government.
BAGWELL:
Indeed the IMF also said the Government should now be considering winding back its guarantee on bank deposits – are you doing that?
BOWEN:
Well the IMF praised our bank deposits and said that they were very important – our bank deposit guarantees, both the wholesale and retail guarantees – said they were very important in ensuring confidence and ensuring access to capital. We set those guarantees in place for three years, and that remains our position.