House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Credit card reforms

4.109 Schedule 5 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

4.110 This Schedule amends the Credit Act to introduce a number of reforms to improve consumer outcomes under credit card contracts.

4.111 These reforms are briefly as follows:

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Reform 1: tighten responsible lending obligations to require that the suitability of a credit card contract for a consumer is assessed on the consumer's ability to repay the credit limit of the contract within a certain period;

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Reform 2: prohibit credit card providers from making any unsolicited credit limit offers in relation to credit card contracts by broadening the existing prohibition to all forms of communication with a consumer and removing the informed consent exemption;

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Reform 3: simplify the calculation of interest charges in relation to credit cards by prohibiting credit card providers from retrospectively charging interest on credit card balances; and

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Reform 4: require new credit card contracts to allow consumers to reduce credit card limits and terminate credit card contracts and require credit card providers to establish and maintain a website that allows consumers to request to exercise these entitlements online.

4.112 The purpose of the amendments is to reduce the likelihood of consumers being granted excessive credit limits, align the way interest is charged with consumers' reasonable expectations and make it easier for consumers to terminate a credit card or reduce a credit limit.

Offences and civil penalties

4.113 Schedule 5 to the Bill introduces offences and civil penalties in respect of reforms 3 and 4. Reforms 1 and 2 are implemented by amending existing provisions of the Credit Act and so existing civil penalties and offences will apply.

Reform 3 - calculation of interest charges under credit card contracts

4.114 Part 3 of Schedule 5 to the Bill imposes, from 1 January 2019, a requirement on credit card providers that they must not impose retrospective interest charges under credit card contracts.

4.115 Failure to comply with this requirement attracts a civil penalty of up to 2,000 penalty units (currently $420,000). An offence is also introduced to prohibit a credit card provider engaging in conduct that contravenes this requirement. A breach of this offence attracts a criminal penalty of up to 50 penalty units (currently $10,500).

Reform 4 - reducing credit limits and terminating credit card contracts

4.116 Division 2 of Part 2 and Part 4 of Schedule 5 to the Bill impose requirements aimed at ensuring a consumer can reduce the credit limit of their credit card contract and ensuring a consumer can terminate their credit card contract.

4.117 From 1 January 2019, it is a requirement that a credit card provider must not enter into a credit card contract unless the consumer has a credit limit reduction entitlement and a credit card termination entitlement under the contract. Further, if a consumer under a credit card contract has a credit limit reduction entitlement or a credit card termination entitlement and requests to exercise either of those entitlements, the credit card provider must not make suggestions that are contrary to the request and must take reasonable steps to ensure that the request is given effect to.

4.118 Failure to comply with any of these requirements attracts a civil penalty of 2,000 penalty units (currently $420,000). Offences are also introduced to prohibit a credit card provider from engaging in conduct that contravenes any of these requirements. A breach of these offences attracts a criminal penalty of up to 50 penalty units (currently $10,500).

4.119 Further, from 1 January 2019, if a consumer under a credit card contract has a credit limit reduction entitlement or a credit card termination entitlement it is a requirement that a credit provider establish and maintain a website that allows the consumer to make a request to reduce their credit limit or terminate their credit card contract.

4.120 Failure to comply with this requirement attracts a civil penalty of up to 2,000 penalty units (currently $420,000). An offence is not introduced in respect of this requirement.

Human rights implications

4.121 This Schedule does not engage any of the applicable rights or freedoms.

4.122 In forming this view, consideration has been given to the introduction by this Schedule of several offences and civil penalties. An assessment of these offences and civil penalties is made below.

Assessment of civil penalties

4.123 Practice Note 2: Offence provisions, civil penalties and human rights ^[9] , observes that civil penalty provisions may engage criminal process rights under Articles 14 and 15 of the International Covenant on Civil and Political Rights (ICCPR), regardless of the distinction between criminal and civil penalties in domestic law. This is because the word 'criminal' has an autonomous meaning in international human rights law. When a provision imposes a civil penalty, an assessment is therefore required as to whether it amounts to a 'criminal' penalty for the purposes of the Articles 14 and 15 of the ICCPR.

4.124 The civil penalty provisions in Schedule 5 to the Bill should not be considered 'criminal' for the purposes of international human rights law. While the civil penalty provisions included in Schedule 5 to the Bill may be considered high (currently a maximum of $420,000) this is consistent with existing civil penalties in the Credit Act.

4.125 Further, the civil penalty provisions included in Schedule 5 to the Bill are directed at people in a specific regulatory context (that is, credit card providers in relation to credit card contracts) rather than applying to the general public. Credit card providers are generally corporate entities and not individuals. Also, none of the civil penalty provisions carry a penalty of imprisonment and there is no sanction of imprisonment for non-payment of any penalty.

4.126 The statement of compatibility therefore proceeds on the basis that the civil penalty provisions in Schedule 5 to the Bill are not 'criminal' for the purposes of Articles 14 and 15 of the ICCPR.

Assessment of offences

4.127 The offence provisions in Schedule 5 to the Bill do not engage any of the applicable rights or freedoms. The offence provisions in Schedule 5 to the Bill are not reverse burden offences, offences of strict or absolute liability, and do not require mandatory minimum sentencing. The offence provisions in Schedule 5 to the Bill have been modelled on existing offence provisions in the Credit Act. Consistent with these existing provisions, the criminal penalties that apply to a breach of an offence in Schedule 5 to the Bill have been set at 50 penalty units (currently $10,500).

4.128 Further, the offence provisions in Schedule 5 to the Bill are directed at prohibiting behaviour in a specific regulatory context, namely, credit card providers in relation to credit card contracts. Credit card providers are generally corporate entities and not individuals and, as such, it is unlikely that the offence provisions in Schedule 5 to the Bill will engage the human rights of individuals.

Conclusion

4.129 This Schedule is compatible with human rights as it does not raise any human rights issues.