Banks decry 'about-face' on changes to credit card laws

Sydney Morning Herald

Thursday March 10, 2011

Eric Johnston and Peter Martin

THE banks have hit out at the Gillard government's approach to market reforms, accusing Canberra of an about-face on an agreement struck with the industry over a proposed shake-up of credit card rules.The heated criticism threatens to open a new front in the government's clashes with business, with much of the resources industry already offside over a range of proposals from carbon to mining taxes.The Australian Bankers Association has also accused the government of breaking an election promise by applying its proposed crackdown to all credit cards, rather than just to new cards.As part of the proposed crackdown on credit cards released last Friday, banks will be banned from issuing over-the-limit fees and will be prevented from allowing cardholders to exceed credit limits by more than 10 per cent. This threatens to shut off a lucrative earnings stream for many banks with over-the-limit fees running into hundreds of millions of dollars a year.But yesterday the bankers association described the proposals as leading to "nonsensical outcomes".As part of a rushed submission to Treasury on the rule changes, the association said the proposed law contained several provisions at odds with an earlier agreement reached with the government on credit cards. As well, the industry lacked the technology to meet the changes by the proposed starting date in the middle of next year.The new rules presented "substantial business risks and operational concerns for banks and other credit providers", it said.In a separate submission, Westpac raised serious concerns over the proposed changes as well as the two-day period for comment, suggesting the government had made an about-face on credit cards."We believed that recent meetings appeared to resolve outstanding issues based on practical difficulties we had raised," the Westpac submission said."We believed we had an in-principle agreement on most outstanding issues, with a further commitment to work together to finalise those issues."We were surprised and deeply disappointed . . . to discover that key aspects of the government's policy had changed on the eve of release of the draft bill."A Senate hearing has been told the big banks were nowhere near as comfortable with the government's bank-switching package as they were letting on.Told by the independent senator Nick Xenophon that only small lenders seemed to be complaining about the decision to ban mortgage exit fees, a Treasury official, Jim Murphy, said the big lenders were "putting on a good face".National Australia Bank and ANZ have removed exit fees. All lenders must do so for new loans from July."We have had consultations with one of those banks who has told us they have lost a significant amount of business since they removed their fees," Mr Murphy said."We've got to take them on face value, but what they said to us was, we think we've got a good product out there, we think our policy of putting the consumer first is going to win us the day and we think our wind-up of mortgages per month will return back to roughly what it should be, even though it will be higher than what we had when we had exit fees."Removing the fees will have a competitive impact."Mr Murphy said Treasury had investigated "super profits taxes" on financial institutions in Europe and the US, but that was not a sign the government was considering introducing them here.

© 2011 Sydney Morning Herald

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