ABA CALLS FOR EVIDENCE TO BACK CLAIMS THAT ACT LEGISLATION HAS BEEN SUCCESSFUL

Sydney, November 25, 2003: The Australian Bankers’ Association (ABA) says claims that ACT credit legislation is successful should be supported with evidence as credit card default rates are at record lows.

The ABA is responding to claims in the media that ACT legislation to restrict marketing of credit cards has been successful. Without evidence, the claim is simply an unsupported assertion.

The Australian Bankers’ Association is unaware of any reduction in credit default stemming from the legislation and Australian banks are recognised around the world for sound credit risk management processes.

David Bell, Chief Executive of the ABA, said: “Defaults on credit cards are at historic lows as Australian banks employ credit risk assessment systems and methodologies that have proved successful here and overseas in reducing the credit risk aspect of their lending decisions.”

“Banks report that the use of behavioural scoring can reduce the incidence of bad debts by up to 15 percent when compared with conventional application scoring methods.”

David Bell, CEO of the ABA, said the process for developing the ACT legislation was not subject to a Regulatory Impact Statement and was not based on research. Available information establishes a strong case that ACT legislation is not the answer.

Mr Bell said: “According to the latest report from the Insolvency and Trustee Service of Australia (ITSA)[1], the major cause of bankruptcy in Australia is unemployment (37%) and when coupled with the two other common causes of credit card default – that is, family breakdown (16%) and illness (10%) - we can see these three factors combined account for 63% of bankruptcies. This confirms that major causes of credit card default are these three factors, not over use of credit, as some consumer advocates and politicians have claimed.”

Bankruptcies have fallen nationally in the past 12 months by 6.1% and it is interesting to note that in the ACT bankruptcies (non-business) have increased by 4.3% in the same period that the legislation has been in force, according to the latest ITSA annual report. The incidence (per thousand of population) of bankruptcy in the ACT is 22 times higher than in NSW.

The ABA said calls to immediately extend the legislation to other states and territories would be a mistake.

In addition, the ABA put some proposals to the Ministerial Council on Consumer Affairs in July 2003 for banks to provide consumers with additional information when making decisions about their credit limits.

While the vast majority use their credit card sensibly and responsibly to manage their finances, the ABA notes that some education about credit management may be needed for the relative few who experience difficulties in managing credit. Many member banks offer customers tools which can assist in understanding budgeting and credit. The industry supports further helpful information being provided to those who need it.

For further information:

Heather Wellard
ABA Public Relations
Phone: 02 8298 0411
Mobile: 0409 830 439

ENDS