Senate

Revised Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

General outline and financial impact

Outline

The National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011 (Home Loans and Credit Cards Bil l) amends the National Consumer Credit Protection Act 2009 (NCCP Act). The NCCP Act establishes a national consumer credit regime.

The Home Loans and Credit Cards Bill adds Part 3-2A and Part 3-2B to the NCCP Act and makes consequential amendments to the NCCP Act and the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009.

The provisions contained within Part 3-2A introduce a requirement for lenders to provide a Key Facts Sheet for standard home loans.

The provisions contained within Part 3-2B:

•

restrict approval of the use of credit cards above the credit limit;

•

specify an allocation hierarchy for payments made under credit card contracts;

•

restrict credit providers from making unsolicited invitations to borrowers to increase the credit limit of their credit card; and

•

introduce a requirement for lenders to provide a Key Facts Sheet for credit card contracts.

Summary of regulation impact statement

Impact: The Home Loans and Credit Cards Bill will affect consumers who use credit cards; consumers of credit used to fund or refinance the purchase of residential property; industry participants, particularly credit card and home loan providers; the Government; and ASIC.

Main Points:

•

These reforms will assist consumers by increasing their capacity to select products or use their credit cards in a way that reduces the level of fees and interest they are charged; and reducing the risk of consumers being provided with credit cards limits where they may be unable to pay the total balance within a relatively short period of time.

•

The costs imposed on credit card industry participants relate to the development of adequate systems and resources to meet the new requirements, including changes to ensure that payments are allocated in the requisite way, credit card usage is not approved above the credit limit except in certain circumstances and Key Facts Sheets are provided to consumers. There will also be associated record keeping costs.

•

Credit card industry participants are expected to face reduced revenue from existing practices in relation to credit card products. They will also be under greater pressure to be competitive given that consumers can make more informed choices upfront.

•

The costs imposed on home loan providers primarily relate to the development of adequate systems and resources to ensure that Key Facts Sheets are provided to consumers, and can be generated by them online. There will also be associated record keeping costs.

Date of effect: Sections 1 to 3 and any other provisions that do not have a specified commencement date come into effect on the day the Bill receives the Royal Assent. Schedule 1, part 1 applies from 1 January 2012. Schedule 1, part 2 applies from 1 July 2012. Schedule 2 applies from 1 July 2012.

Proposal announced: These reforms form part of the Government's 'Fairer, Simpler Banking' and 'Competitive and Sustainable Banking System' announcements of 15 August 2010 and 12 December 2010 respectively.