Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)General outline and financial impact
Promoting financial stability
Schedules 1 and 2 to the Bill will promote financial stability through strengthening APRAs ability to respond to developments in non-ADI lending that pose a risk to financial stability.
Date of effect: Royal Assent.
Proposal announced: Budget 2017-18.
Financial impact: No financial impact.
Human rights implications: These Schedules do not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 1, paragraphs 1.133 to 1.137.
Compliance cost impact: Low.
Summary of regulation impact statement
Regulation impact on business
Impact: Schedules 1 and 2 to the Bill are estimated to increase the regulatory burden on non-ADI lenders by around $1.2 million per annum.
Main points:
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- Financial sector stability is critically important to economic performance.
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- Consistent with its mandate to promote financial stability, APRA has taken actions to reinforce sound residential mortgage lending practices by ADIs.
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- However, there currently exists a regulatory gap whereby APRA has no ability to manage material financial stability risks that might arise from the lending activities of entities that are not ADIs (non-ADI lenders).
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- This gap will be closed by providing APRA a reserve power to make rules in respect of the lending activities of non-ADI lenders, should these activities be materially contributing to risks of instability in the Australian financial system.
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- To enable APRA to monitor the non-ADI lending sector and determine when and if to use this new power, non-ADI lenders will need to register with, and provide data to, APRA.
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- Non-ADI lenders will only incur regulatory costs in registering with APRA. These costs are expected to be minimal, as little is required to register.
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- Regulatory impacts of the data reporting are to be assessed by APRA when, in future, it makes the Reporting Standard required to initiate the data collection.
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- Similarly, regulatory impacts of a rule made by APRA will be assessed when APRA makes that rule.
Removing restrictions on the use of the term 'bank'
Schedule 3 to the Bill will promote a reduction of barriers to new entrants to the banking sector and provide a more level playing field amongst ADIs. Further, the changes will align community expectations in respect of the use of the term 'bank' with the fact that ADIs are prudentially supervised by APRA and deposits are covered by the FCS guarantee.
Date of effect: The day after the end of the period of two months beginning on the date of Royal Assent
Proposal announced: Budget 2017-18
Financial impact: None.
Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 2, paragraphs 2.20 to 2.24.
Compliance cost impact: None.
Objects of the Banking Act
Schedule 4 to the Bill modernises the Banking Act 1959 (Banking Act) by inserting an objects provision. Similar industry Acts, the Life Insurance Act 1995 and the Insurance Act 1973 contain objects provisions which guide the reader on the main purposes of the Act.
Date of effect: Royal Assent.
Proposal announced: Budget 2017-18
Financial impact: Nil.
Human rights implications: This Schedule does not any human rights issue. See Statement of Compatibility with Human Rights - Chapter 3, paragraphs 3.14 to 3.17.
Compliance cost impact: Not applicable.
Credit card reform
Schedule 5 to the Bill amends the Credit Act to introduce a number of reforms to improve consumer outcomes under credit card contracts.
Date of effect: The amendments made by this Schedule commence as follows:
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- Part 1 - 1 January 2019;
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- Part 2, Division 1 - 1 July 2018;
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- Part 2, Division 2 - 1 January 2019;
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- Parts 3 and 4 - 1 January 2019;
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- Part 5, provisions relating to credit limit increase invitations - 1 July 2018
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- Part 5, all other provisions - 1 January 2019.
Proposal announced: The measure was announced on 9 May 2017 as part of the 2017-18 Budget.
Financial impact: Nil.
Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - paragraphs 4.109 to 4.129.
Compliance cost impact: $36.4 million per annum.
Summary of regulation impact statement
Regulation impact on business
Impact: Total compliance costs of $364 million, or $36.4 million per annum, across credit card providers and affected individuals over a 10 year period.
Main points:
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- The Government has been informed of the regulatory impacts of various reform options by the Senate Economics References Committee's Inquiry into matters relating to credit card interest rates, 'Interest rates and informed choice in the Australian credit card market' (the Senate inquiry), and consultation with industry stakeholders
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- The Senate inquiry found that the credit card market is characterised by inadequate competition on ongoing interest rates and a pattern of over-borrowing and under-repayment by consumers.
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- Deficiencies in the current regulatory framework can mean that many consumers are not provided with sufficient protections. In addition, behavioural biases and the complexity of credit card products impede competition and contribute to consumers building up excessive credit card debt.