Written Questions (re Credit Cards)

Snapshot of Question 4:

Was Dr. Malcolm Edey (now retired from RBA) correct when he asserted that the ACCC is responsible to investigate interest rates charged by some Credit Card Issuers and by implication that the RBA is not responsible to investigate credit card interest rates?

Question 4

Below is a extract from the Senate Economics Reference Committee report "Interest rates and informed choice in the Australian credit card market  - Dec 2015:

"1.8 Dr. Edey quite rightly made the point that Australia does not regulate interest rates, and, as such, there is no interest rate regulator.  He told the committee that Australia does have 'an ACCC [Australian Competition and Consumer Commission] that can investigate uncompetitive conduct if they see it, but they clearly have not seen it in this market'.3   It was put to Dr. Edey that the issue was not so much whether there was uncompetitive conduct in the market, but whether regulatory settings were conducive to the promotion of sufficient competition to put downward pressure on credit card interest rates.4  In part, the committee's inquiry has been directed at understanding whether existing regulatory settings in relation to credit cards are appropriate in this respect.  More broadly, the committee has sought to determine what might be done to improve competition in the credit card market or otherwise put downward pressure on credit card interest rates."

 

Mindful of -

 

(i)       the above-mentioned duty of the Reserve Bank's Board, and the fact that Reserve Bank stringently regulated interest rates, relying on Section 50 of the Banking Act 1959 (noted in Question 2), in particular capped credit card interest rates at 18% until 1985; and

 

(ii)        the ACCC website clearly notes that "..it has an agreement with ASIC that ASIC oversees the majority of bank and financial service product and services providers.",

 

was Dr. Malcolm Edey correct in Dec. 2015 when he told the Senate Economics Reference Committee that the ACCC is the designated regulator to "... investigate uncompetitive conduct..." regarding "...credit card interest rates...", thereby implying that the Reserve Bank is not responsible to investigate credit card interest rates for "the economic prosperity and welfare of the people of Australia"?

 

Grounds for Question 4

Prior to 1985 the maximum rate that could be charged on credit cards had been set at 18% pa by the Reserve Bank.  In April 1985, this rate cap was deregulated.

Re Dr. Edey's above comment about the ACCC ".....can investigate uncompetitive conduct if they see it, but they clearly have not seen it in this market''. 

The ACCC website notes:

           "The ACCC regulates anti-competitive behaviour.  However, it has an agreement with ASIC that ASIC oversees the majority of bank and financial service product and services providers."

The Writer's email to RBAInfo sent 16 March 17 included:

            "Am I correct that ACCC has had no responsibilities re credit cards since 23 Feb. 2004 when the RBA ‘set standards’ under its newly created Access Regime for MasterCard/Visa?"

RBAInfo response sent  18 April 17 included:

            "It is not correct to say that the ACCC has no responsibilities in relation to credit cards. In addition to the Memorandum of Understanding cited, there is a short description of the role of the ACCC on the RBA website: http://www.rba.gov.au/about-rba/boards/psb-board.html#withACCC"

Section 10(2) of the Payment Systems (Regulation) Act 1998 says:

‘It is the duty of the Reserve Bank Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank ... are exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to ...........the economic prosperity and welfare of the people of

Australia.

 

Below is Reserve Bank Act (1959), Part II, Section 10 ''Functions of Reserve Bank Board":

(1)      Subject to this Part, the Reserve Bank Board has power to determine the policy of the Bank in relation to any matter, other than its payments system policy, and to take such action as is necessary to ensure that effect is given by the Bank to the policy so determined.

(2)      It is the duty of the Reserve Bank Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank under this Act and any other Act, other than the Payment Systems (Regulation) Act 1998, the Payment Systems and Netting Act 1998 and Part 7.3 of the Corporations Act 2001, are exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to:

                     (a)  the stability of the currency of Australia;

                     (b)  the maintenance of full employment in Australia; and

                     (c)  the economic prosperity and welfare of the people of Australia.

Point 1. of Extensive Powers notes that the BANKING ACT 1959 - SECT 50 "Control of interest rates" that the Reserve Bank may, with the approval of the Treasurer, make regulations that make provision for or in relation to the control of rates of interest payable to or by ADIs.

Watchdogs quiet as banks gouge credit cards  -  Daily News  -  2 June 2015

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