Sydney, 2 March, 2006: The Australian Bankers’ Association (ABA) will be providing its views to the Victorian Government on the options proposed in “The Report of the Consumer Credit Review”.

The Report, today released by the Victorian Minister for Consumer Affairs, Marsha Thompson, proposes options for regulatory changes to the state’s credit laws.

David Bell, Chief Executive of the ABA, said: “The ABA was surprised to see so many proposals for regulatory intervention at a time when the Victorian Government is attempting to encourage financial service providers to establish offices in Victoria. It may send the wrong signal at a time when other Governments are trying to reduce red tape for consumers and business.”

The ABA’s preliminary views on report options:

• warnings on credit card statements - The ABA is not aware of any research having been conducted on the effectiveness of the option of warnings on credit card statements. There is a risk that proceeding with legislation without fully understanding the issue will impose substantial compliance costs on credit providers with no demonstrated net benefit to consumers.
• ban on pre-approved credit card increases - Banks have received criticism for offering increased credit limits to existing credit cardholders. Critics wrongly assume that banks indiscriminately offer their own customers the choice of having a credit limit increase. The customers who receive these offers are those the banks have determined are credit worthy. The Reserve Bank of Australia data shows that the overwhelming majority of credit card customers are managing their credit commitments responsibly. More has been repaid than borrowed on credit cards in the past 12 months. This shows that customers are exercising a capacity to manage their finances. The low credit card default rate is another indicator of sound lending practices.

The ABA welcomes the report’s options to clean up the poor practices of fringe lenders who are not regulated, like banks, by the Australian Prudential Regulation Authority (APRA).

The ABA also echoes the report’s call that all lenders should belong to an alternative dispute resolution service. All ABA retail banks are members of the Banking and Financial Services Ombudsman (BFSO) – a free and independent dispute resolution service which assists customers resolve disputes with their bank. The BFSO has been approved by the Australian Securities and Investments Commission (ASIC) under the Commonwealth financial services reform legislation.

Before any new regulation is considered, the ABA would expect a Regulatory Impact Statement is prepared which adequately assesses the costs to consumers and business of implementation.

These views from the ABA are preliminary. ABA member banks will be studying the full impact of these options on bank customers and will be lodging a submission to the Victorian Consumer Credit Review.