|
Writer's CD
submission to RBA sent 8 Dec 2011
Defined Terms and Documents
5 Ronald Avenue
Freshwater NSW 2096
8 December 2011
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Ms. Sharon
van Etten
Public Relations Officer, Media & Public Relations Office
Reserve Bank of Australia
65 Martin Place
Sydney NSW 2000
Dear Sharon
* Request
to the Reserve
Bank of Australia, hereinafter the RBA, to
implement the same "competitiveness and efficiency"
that it has overseen in the
Wholesale Supply Side of the debit and credit cards products to the
Retail Supply Side of
credit cards, because banks profits from credit cards are not derived
from the
User Pays Principle
*
All users should pay the cost of their credit card
transactions, and not some "unlucky" users
paying a disproportionate burden
which has further gapped the "Haves" from the "Have Nots"
I refer to -
(i)
my initial email to
RBAInfo sent Tues, 25 Oct '11 19:35
which noted 'inter alia' that
"After
retiring from a 37 year career at CBA, where I dealt with former RBA colleagues
in the late ‘70s at what was then known as Note Issue, I now spend part of my
time pursuing causes with Govt and bureaucracy that I think have merit";
(ii)
your email
response
sent
Thurs, 10 Nov '11
2:27pm;
(iii)
my holding
response to RBA from a camp ground in Berry NSW sent 11 Nov 1;15pm;
(iv)
my email to RBA sent Fri, 16 Dec '11;
and
(v)
my
email to RBA sent Tues, 20 Dec '11
1. Summary of eight
Attachments
Attachment 'A' is
an Excel file which opens at worksheet 'Low
Interest Credit Cards' from
www.australia.creditcards.com
with separate worksheets that set out many of Australia's most popular credit cards
under different criteria (ie. 'Top 10 Best Credit Cards', 'Low Annual Fee Credit Cards', 'Low Interest Credit Cards') with -
(A) 'annual interest rates' for an
interest free period of 55 days -
*
as low as 10.99% - 674 basis points
above the RBA Official Interest Rate - 4.25%
as at 6 Dec '11; and
*
as high as 20.99% on
purchases and 21.74% on cash advances
- 1,674 basis points and 1,749 basis points respectively, above the RBA Official Interest Rate -
4.25%
as at
6 Dec '11.
(B) 'annual fee' for an interest free
period of 55 days -
*
as low as $45; and
*
as high as $700.
(c)
'loyalty reward points' -
* as low as no points
for every $1 spent; and
* as high as
2½ points for
every $1 spent.
All of the
'annual interest rates' in (A) above are on 'an on-going (no honeymoon/no introductory rate) basis'.
Attachment 'B'
is titled
Pertinent
extracts from the below three payments system/credit card reports provided in
Sharon van Etten's
(Media & Public Relations Office)
email to Phil Johnston sent Thurs, 10 Nov '11 2:27pm:
1.
Strategic Review of Innovation in the Payments
System: Results of the Reserve Bank of Australia’s 2010 Consumer Payments
Use Study June 2011,
2.
Payment, Clearing and Settlement Systems in the CPSS
Countries – Volume 1 (The Red Book)
3.
Payment Systems in EMEAP Economies (EMEAP Red Book
July 2002)
Attachment 'C' is the
RBA's
"Our Role"
which "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
...........................will best
contribute to...............the
economic prosperity and welfare of the
people of Australia."
Attachment 'D'
is the
Payments System Board's Responsibilities
and Powers, 'et al' which notes that
-
*
"The Reserve Bank Act 1959, as
amended,
gives the Payments System Board
responsibility for determining the Reserve Bank's
payments system policy........ in a way that will best contribute
to ......promoting the efficiency of the payments system;
and
promoting competition in the market for payment
services, consistent with the overall stability
of the financial system."
*
"Increasingly, central banks are being given
explicit authority for payments system safety and
stability,
but the Board's legislative responsibility and
powers to promote efficiency and competition in the
payments system are unique.
This responsibility
has broadened the Bank's
traditional focus on the high-value wholesale
payment systems which underpin stability, to
encompass the retail and commercial systems where
large transaction volumes provide scope for
efficiency gains."
*
"The Bank's
wide-ranging powers in the payments system are set
out in the
Payment Systems (Regulation) Act
1998.
It may .....'designate' a particular payment system as being
subject to its regulation.......determine rules for participation in that
system, including rules on access for new
participants. Since access is inextricably
linked to efficiency the Bank works closely with
the Australian Competition and Consumer
Commission (ACCC) set
standards for safety
and
efficiency for that system. These may deal with issues such as
technical requirements, procedures, performance
benchmarks and
pricing;
*
The
Payment Systems (Regulation) Act 1998
also gives the RBA
"extensive powers"
to "...gather information from a
payment system or from individual participants."
*
"The Reserve Bank Act 1959
provides a
clear delineation between the Payments System Board,
which has responsibility for the Bank's payments
system policy, and the Reserve Bank Board, which has
responsibility for the Bank's monetary and banking
policies and all other policies except for payments
system policy. Instances of conflict over policies
should therefore be rare.
However, if a conflict
were to arise,
the view of the Reserve Bank Board
would prevail to the extent that there was any
inconsistency in policy."
Attachment 'E'
is the
Joint Press Release from the Treasurer and the Minister for Financial Services & Superannuation for the
National Consumer Credit
Protection Amendment (Home Loans and Credit Cards) Bill
which informs that there are some 15 million credit-card
accounts in Australia - many families have 2 or 3 different cards -
and asserts that the below five reforms which only apply to new
credit cards taken out after 1 July 2012
"will stamp out lender practices that see consumers
pay more interest than they should":
-
Force credit card lenders to
allocate repayments to clear higher interest debts first;
-
Stop
lenders from bombarding consumers with pre-approved,
tick 'n flick
offers to increase their credit limits;
-
Prevent
lenders charging fees to customers who go over their credit limit unless
they've expressly asked for this service;
-
Make it
mandatory for credit-card application forms to include a clear summary of
key account features;
-
Require all lenders to clearly warn consumers on
their monthly credit statement of the consequences of only making minimum
repayments.
Attachment 'F' is an unrequested invitation from ANZ
Bank dated 14 Nov 11 to my 90 year old mother in an envelope which notes "Sick
of paying a high interest rate on your credit card".
The enclosed letter offered 2.9% p.a. interest on the balance transferred
for first 12 months and mentions other peripheral benefits for its ANZ First
Visa card. The very high interest rate on purchases and the even higher interest
rate on cash advances is hidden in the fine print. The ANZ's envelope falsely asserts that its First Visa card has a low interest rate, and combined with its enclosed letter, constitutes
predatory, deceptive, misleading and unconscionable marketing, but probably no more so than most
Credit Card Issuers.
Attachment 'G' snapshots 'inter alia' that:
-
There were an estimated 16 million credit cards in
circulation in Australia in 2009.
-
Australians spent $19.19 billion on credit and charge cards in the month of October 2009.
-
The
average credit card account balance was $3,141 in October 2009.
-
Total
credit and charge card balances outstanding stood at $45.153 billion in
October 2009.
Attachment 'H'
titled
All Smoke and Mirrors
provides an unfortunate testament of the prudential role performed by the
bank -
(i) entrusted to be
banker and financial agent for the Commonwealth; and
(ii) with a charter to protect "....the
economic prosperity and welfare of the people of Australia".
if
CreditCards.com (parent site of
australia.creditcards.com)
is being paid by some
or all of
Our
Bank/Issuer Partners
(ANZ, Aussie, Bank Mecu, Bankwest, citi, NAB, St George, Virgin, Westpac)
for providing links to those banks' websites credit card products at
 ,
because some like NAB's Low Interest Credit Card, Bank mecu's Low Interest Rate
Credit Card
and
Bankwest's
Breeze MasterCard are patently deceptive.
Attachment 'I'
is a report from the Melbourne Institute released 17 June 2010 which
noted that “Credit card debt overtook
mortgage debt as the main form of household debt in June, 36.6 per cent compared
to 33.9 per cent. This is the first time since November 2006 that
households nominate credit card and not mortgage debt as their main form of
debt.”
2.
Comments on your email sent
Thurs, 10 Nov '11 2:27pm
Attachment 'B' and
(I.), (II.) and (III.) below highlight that the RBA
"has
taken a number of steps to improve the competitiveness and efficiency"
of
the
Wholesale Supply Side of the debit and credit card products which look to be priced
reasonably for
"the economic prosperity and welfare of the people of Australia":
(I.) In 2006 PSB prescribed
the
interchange fee standard (paid by transaction acquiring institutions,
hereinafter Merchants to Credit Card Issuers to be no higher, on a weighted average basis,
than a cost-based
benchmark.
Interchange fees in the Visa and MasterCard systems are paid by the
Merchants to
Credit Card Issuers
and are subject to regulatory caps - a weighted average of -
* 50 basis points for
credit card
transactions, and
* 12 cents for
Debit Card transactions.
(II.) Around 2006, PSB
removed restrictions on Merchants charging surcharge fees (which may differ in
percentage) to customers for
use of credit cards according to the fee charged to the Merchant by the Credit Card Issuers.
(III.) The RBA undertook reforms to the EFTPOS system for proprietary debit cards and
the debit
card system operated by Visa in Sept 2006. MasterCard provided a voluntary
undertaking to comply with the Visa Debit Standards.
These reforms -
i) capped the
level of
scheme debit interchange fees;
ii) set a cap and floor to bilateral EFTPOS system
interchange
fees;
iii) removed the requirement that
Merchants accepting scheme credit cards also
accept
scheme debit cards;
iv) allowed
Merchants to surcharge customers using scheme debit
cards
for payment; and
v) liberalised access arrangements for the EFTPOS system,
in
conjunction
with an EFTPOS Access Code developed by APCA.
From January 2010, the RBA
established a separate cap for multilateral EFTPOS interchange fees.
The BPAY biller's financial institution pays a
wholesale cost-based benchmark fee
to the BPAY payer's
institution of -
* 45.1 cents for a BPAY payment from a deposit account, or
* 40.7 cents
(plus 0.297% of
the transaction value) for each BPAY payment from a credit card account.
The above interchange fee standard, allowance of Merchant fee
surcharges and
BPAY fee structure are testaments to the application of
"cost-based benchmarks"
on the
Wholesale Supply Side.
Perhaps a lot of
Argy Bargy amongst the following
lobby groups over supply/demand impacts
and cost-based benchmarking of services/funding costs have contributed to the
"competitiveness and efficiency" on the
Wholesale Supply Side of the debit and
credit card systems in Australia:
-
Visa,
MasterCard, Amex, Diners Club
ePal - part-owned by the four pillar banks and also Coles and Woolworths
-
Australian
Payments Clearing Association
-
AMA
The
Pharmacy Guild
Retail Traders Association
-
Australian Newsagents Federation
-
other Merchant
special interest groups
TYRO Payments Limited
Based on my dealings with the RBA in the late
'70s, and my understanding why Commonwealth Bank of Australia was divested of it
central bank functions in 1959 (refer Section 3 below), and having considered
Attachment 'C'
and
Attachment 'D',
I am unable to comprehend your contention that
"The Payments System Board of the Reserve Bank has
no regulatory power over these aspects of credit cards."
I understand that the RBA has
"...extensive powers..."
to
"......encompass the retail and commercial systems where large transaction
volumes provide scope for efficiency gains.....to
gather information from a payment system or from individual participants"
and is therefore authorised to request:
"All the banks
to provide monthly (or quarterly) data on:
1. Number of cards
that repaid total indebtedness and aggregate dollar amount of those
repayments.
2. Number of cards
that repaid > or =50% of total indebtedness and aggregate dollar amount of those
> or = 50% repayments.
3. Number of cards
that repaid<50% but >5% of total indebtedness and aggregate dollar amount of
those <50% but >5% repayments.
4. Number of cards
that repaid <=5% of total indebtedness and aggregate dollar amount of those <=5%
repayments."
If the RBA has to create a new regulation(s),
then it has the authority and charter to do so.
Attachment 'E'
National Consumer Credit
Protection Amendment (Home Loans and Credit Cards) Act
contains some useful reforms which will come into
effect from 1 July 2012 - 7 months away. However, the
Press Release
WRONGLY asserts that the five reforms
"will stamp out lender practices that see consumers
pay more interest than they should".
This
Act does not to stop the existing 15 million
credit card accounts being burdened with very high interests rates (up to
20.99% on purchases and 21.74% on cash advances) and
perhaps even higher, that are materially higher than the
Credit Card Issuers' cost of funds. (The RBA Official Rate is
presently 4.25%. NAB's Low Rate Visa Card charges a competitive 13.49%
after the 55 days interest free period for purchases and has an annual fee of
only $59. It even offers a very cheap 2.99% on purchases for the initial
12 months and 4.99% for 6 months on balance transfers.
The
interest-free period for up to 55 days only
applies "on
purchases if you pay your account in
full by the due date each month.".
Many other cards are charging 750 basis points higher than NAB's
Low Rate Visa Card for purchases with higher annual fees.) NAB's Low Rate Visa Card
does charge a very high 21.74% p.a. for cash
advances.
The
National Consumer Credit
Protection Amendment (Home Loans and Credit Cards) Act
does NOT ensure that the existing 15
million credit-card accounts will not continue to be burdened with very high
interests rates, as acknowledged by PM, Julia Gillard
"These changes will apply to new credit
cards"
- top of
pg 4. The existing 15 million credit-card accounts will
continue "....to pay more interest than they
should". Hopefully the
Act will reduce predatory, deceptive
and misleading marketing as evidenced in
Attachment 'F' above.
3. Commonwealth Bank of Australia lost its central bank functions
in 1959
Prior to 1959 Commonwealth Bank of Australia ("CBA") performed the central bank
functions in Australia; CBA was banker and financial agent for the
Commonwealth. Those central banking functions were separated from the
CBA's commercial activities with the Reserve Bank Act of 1959. On 14
January 1960, the Reserve Bank of Australia opened for business with Dr H.C. Coombs as the first Governor of the RBA.
The
RBA was established to ensure that CBA -
(i) did not enjoy a competitive
advantage from the other Australian banks (ie. Bank of New South Wales,
National Bank of Australia, Commercial Banking Company of Sydney, Rural Bank
of NSW,
ES&A Bank and National Bank of Australasia, 'et al'); and
(ii) Australia's central bank
functions were not conflicted because the RBA would remain "at arm's length"
so as to comply with its
role.
4.
Australia's central bank should best contribute
to the economic prosperity and welfare of the people of Australia by regulations
that -
a) acknowledge that -
* all humans are not born with the same
literacy and numeracy skills, and
* other "unlucky" Australians may
purchase property immediately prior to a property slowdown and get caught in a
credit squeeze exacerbated by higher energy, fuel and food prices, colloquially
known as "the new poor"; and
b) ensure Australia's
payments system treats all
Australians equally by ensuring that the interest rates on 'purchases' and
'cash advances' are based on the real cost of funds and
quantifiable credit default risk
Homo Sapiens
are born with a variety of skills, talents and cogitative powers which
are increasing and evolving. A very small proportion can
run 100m in under 11 seconds. Some with
brilliant minds are socially or sporting inept. Some are more
intelligent than others. Many of the less intelligent, less educated,
struggle with managing their personal finances. Some had parents who meticulously taught them
money management skills from an early age,
and were encouraged
to do chores to earn their pocket money and likely had jobs over
Christmas at Macca's, a petrol station or a supermarket from age 14.
Many other humans were not so "lucky". They simply drew
parents who could not manage money themselves.
Gene lines of
humans that have better adapted to life on terra firma generally live in the
higher socio-economic suburbs and enjoy a higher quality and duration of life. A lot of "luck", and "bad luck", applies to being born a human.
Humans who enjoyed good parenting, and were passed on good genes, are "lucky"
humans. It
seems that many "lucky" humans are too often not disposed to help
those who, through no fault of their own, have been "unlucky" with the
gene line and intellect that they inherited. In fact,
the survival of the fittest instinct that Homo Sapiens
required to survive
over a hundred thousand years ago still exists in too many aspects of life and business
today, even though those threats largely no longer exist, particularly in The Lucky Country.
When Homo Sapiens
first began appearing in East Africa approx 150 thousand years ago our
direct descendants had to feed, clothe and house themselves
when most of animal life around them were much stronger and larger. These
included Neanderthal, at times a brutal carnivore who sometimes hunted
and ate the weaker and more vulnerable, Homo Sapiens. There should
be no place for a survival of the fittest mentality
today, especially over the task of managing personal finances which
"up to half of Australian adults" struggle with.
The
Productivity Commission's report
Links Between Literacy and Numeracy
Skills and Labour Market Outcomes dated Aug
2010 utilised data from a 2006 survey on the literacy and numeracy skills of the
Australian adult population which lamentably revealed that literacy and numeracy
skills
for nearly half of the population were
assessed at either levels 1 (the lowest level) or 2, both of
which are below the minimum level deemed necessary to participate in a
knowledge-based economy (level 3).
| SMH 'Business
Day' article "Middle class hit by debt
-
Huge
mortgage repayments and credit cards bills are taking their toll"
dated 21 Jan 2009 interviewed Tony Devlin, Head Financial Counsellor, Salvation Army's
Moneycare service. Tony commented
that
"There are far more middle-income earners seeking a way out of the desperate
cycle of huge mortgage repayments and mounting credit card debt.........And people try to
keep the ship afloat by using more credit cards."
The writer spoke to Tony Devlin on Wed 7 Dec
'11. Tony told him "It is not
uncommon to meet people in financial trouble who had significant debts
on between 6 and 10 credit cards."
How can this be if
-
i)
Baycorp Advantage (formerly Credit Reference Association
of Australia) holds credit details on all of us; and
ii) all credit card applications require the Credit Card Issuers to obtain
a Credit Reference Report from Baycorp Advantage?
iii) does a Credit Reference Report factor in cards held by a partner at the
same address?
Brian Harvey,
chairman of the Financial and Consumer Rights Council in
Victoria who manages seven financial counsellors for the
Good Shepherd program on the Mornington Peninsula said
"the demographics have
changed in the past 18 months. As well as people on
pensions, we are seeing middle-income earners overcommitted
on mortgage repayments and credit card debt and struggling
with big price jumps for food and petrol." |
Tony Devlin, Head
Financial Counsellor
Salvation Army's
Moneycare service |
Perusal of item
3
Payment Systems in EMEAP Economies (EMEAP Red Book
July 2002)
in
Attachment 'B'
indicates that none of the East Asian Pacific credit card systems reviewed
therein have adopted a
User Pays Principle on the
Retail
Supply Side
of credit cards. However, because of our
heritage and high standard of living, by all the standard measurements, Australia has a higher
sense of community
than many of those countries. Australia is ideally placed to lead the way in heeding
the warnings of the
WEF (refer Section
5
below)
and other august international organisations to put in 'checks and balances'
to facilitate all people being treated equally, as
well as mitigate 'Compulsive Buying' substance addiction
(refer Section 6 below).
Attachment 'C' carries a responsibility in
The Lucky Country for the RBA to perform the parenting role for those "unlucky"
parents who were not born with the skills to teach
their siblings
money management skills, by
prosecuting the case against the other powerful lobby groups, in particular
Credit Card Issuers, on behalf of the
'unlucky" humans to
provide A) to H) of Section 8 below. Commonwealth Bank 'lost the
gig' in 1959 because Bank of New South Wales,
National Bank 'et al' argued 'inter alia' that the central bank must always be 'at
arms length' in performing its role to "......
best contribute to.... the
economic prosperity and welfare of the
people of Australia."
When survival of the fittest was the law of the jungle, there
were no safety nets for the weaker. But there are now, whereupon
the fiscal burden of collateral damage from the following all cost the public
purse billions of dollars annually:
(i) depression, physical and other mental health problems;
(ii) increased
health care and social welfare costs;
(iii) diminished productivity and associated foregone tax contributions;
and
(iv) widening generation gap/diminished
family unit cohesion.
Conversely, a plethora the published writings by health experts, psychologists
and economists attest to the synergies and economies that flow when members of a
community believe that they are all being treated equally and fairly, where each
person is paying his/her own way, and no one is scamming the system.
Communities with those attributes are often labelled "Happy Towns" for
their 'Eminent Sense of Community', loyalty and self-belief.
The research
shows that the 10 per cent of people with the lowest
financial literacy levels are more likely to:
1. be aged 16 to 20 years old (38.6 per cent)
2. be male (55.6 per cent)
3. be unemployed (7.1 per cent) or
students (29.6 per cent)
4. have lower education levels (15 per
cent of those not currently studying had some high school education and 20
per cent of those not currently studying had completed Year 12)
5. have lower annual personal income (34
per cent reported annual personal income under $10,000)
6. have lower annual household income (44
per cent reported annual household income under $50,000)
7.
have never worked in paid employment.
Hence, the bank with
"extensive powers"
to regulate interest rate caps, as it did until 1979 for investment deposits
held by banks
(Section 9 below) is compelled to exercise those
"extensive powers"
for "the economic prosperity and welfare of the people of Australia",
in particular to protect those between 16 and 20 years old - as addressed in
Section 8 B) (b) below.
Federal independent MP Andrew Wilkie and Senator Nick Xenophon
are seeking drastic changes to poker
machines to reduce the adverse effects of poker machine gambling addiction.
Other common addictions include nicotine and alcohol which according to Access Economics reports, each wreak an enormous
burden upon the Australian economy.
Estimated
Prevalence of Compulsive Buying Behavior in the United States
(published by
The American Journal of Psychiatry)
written by Dr Lorrin Koran, Professor of Psychiatry, School of
Medicine and Director of Obsessive Compulsive Disorder Clinic Stanford
University, California USA, and other eminent Behavioural Scientists, forecasts
that 'Compulsive Buying' (uncontrolled urges to buy, with resulting significant
difficult consequences)
adversely effects 1.8% to 16% of the adult U.S.
population.
The US. National Institute on Drug Abuse has
considered behavioural addictions (such as Compulsive Buying) to be "cleaner"
and more homogeneous models of substance addictions.
In 2008 Curtain University
WA
carried out research to
investigate money attitudes and credit card usage between compulsive and
non-compulsive buyers of young Australians.
In its finding it recommended that "Marketers and policy makers
are recommended to incorporate consumer education programs for young adults to
build skills to counter financial problems."
Casual empiricism of
Attachment 'A' indicates that
Credit Card Issuers are exploiting
suffers of 'Compulsive
Buying' substance addiction.
Attachment 'F' is merely one example of a major Australian bank deploying
predatory marketing to induce "unlucky" Australians, some who
suffer from 'Compulsive
Buying' substance addiction, to take a credit card
with a high interest rate (approaching 20.99% pa for purchases and 21.74% for
cash advances) which would prove more profitable to the Credit Card Issuers.
7.
Questions that Australia's central bank should be able to answer
1.
Does the
statistic that 61 per cent circa of credit card users pay off
the closing balance of their credit card bill in full by the due date ‘every
month’ support my view that the credit card system does not follow the
User Pays Principle? Almost every person that I know either has a
periodical debit set up to repay their monthly credit card indebtedness
prior to expiry of the interest free threshold or diarises to repay their
full indebtedness, so as not to pay exorbitant interest rates.
2.
Why "At
the other end of the spectrum, around one-quarter of credit card users pay
off their credit card in full ‘not very often’ or ‘hardly ever/never’"?
3.
Why does
Australia's central bank have very little idea of the profitability of the
credit card system on a demographic socio-economic basis when the RBA
Board's proclaimed duty, within the limits of its
"...extensive powers..."
under 'inter alia' the Payment Systems (Regulation) Act 1998 are
"to ensure that the monetary and banking
policy of the Bank is
directed to the greatest advantage of the people
of Australia .......will best
contribute to...... the
economic prosperity and welfare of the
people of Australia."?
4.
Why are
Australia's major banks announcing record profits? Why are executive bonus
schemes reaching new zeniths each year?
5.
Were the
riots in England 6 months ago a reaction by the 'Have Nots' to the
excesses of the 'Haves'? If the gap was narrower, would the riots
have been smaller?
6.
What is
the primary "biff" of the 'Occupy Wall Street' movements?
7.
In light of the RBA's role to
"....best contribute to...... the economic
prosperity and welfare of the people of Australia.",
why is the
Retail Supply Side of the credit card system so
bereft of similar "competitiveness and efficiency"?
8.
Is the
RBA conflicted with the major banks over its role to
ensure that the credit card system is directed to the -
* greatest advantage of the people of Australia; and
* economic prosperity and welfare of the people of Australia?
9.
Is the
Payments System Board conflicted with the major banks over its role to
promote competition in the market for payment services, consistent with the
overall stability of the financial system, when 39% circa of credit
card users do not pay off
the closing balance of their credit card bill in full by the due date ‘every
month’
and
one-quarter of credit card users pay off their credit card in full ‘not very
often’ or ‘hardly ever/never’"?
10. Why did the Treasurer and the Minister for Financial
Services and Superannuation issue a
Joint Press Release in July 2011 which
falsely asserted that the changes in the
National Consumer Credit Protection Amendment
(Home Loans and Credit Cards) Bill will
"stamp out lender practices that see consumers
pay more interest than they should" for
"some 15 million credit-card accounts in Australia."
when the changes from 1 July 2012 will have little or no impact on the
excessively high
interest rates that many of the 15
million credit-card accounts in Australia continue
to
incur?
8. Philip Johnston asks the RBA to
-
a) accept that unlike the
powerful lobby groups noted in Section 2 above,
Credit Cardholders do not have
access to a powerful lobby group to protect their interests; and
b) provide A) to
H) below so that the
credit card system is paid for by its users on a "User
Pays basis", and not by
many who can least afford it, because they were not "lucky" enough to be born with,
or taught, requisite money management skills or take on a hefty mortgage during
a period when the property market continued to appreciate
Attachment 'B'
provides an impressive
array of achievements by the RBA in administering the credit and debit card
systems. In doing so, the RBA provides precedent for
this letter requesting the RBA to rely upon the Payment
Systems (Regulation) Act 1998 which gives the RBA
"extensive powers" to
-
A) "gather
information from payment system participants and operators"
by proceeding to obtain data
for a
particular month (or quarter)
from over 70 issuers for the
330 different
types of cards that are available which shows:
1. Number of cards
that repaid total indebtedness and aggregate dollar amount of those
repayments.
2. Number of cards
that repaid > or =50% of total indebtedness and aggregate dollar amount of those
> or = 50% repayments.
3. Number of cards
that repaid<50% but >5% of total indebtedness and aggregate dollar amount of
those <50% but >5% repayments.
4. Number of cards
that repaid <=5% of total indebtedness and aggregate dollar amount of those <=5%
repayments;
B) "determine rules for participation in a payment
system and set Standards for safety and efficiency, incl issues such as
performance benchmarks"
by proceeding to implement
"cost-based benchmarks" [akin to (I.), (II.) and (III.)
in Section 2 above] by -
(a) setting
a regulatory cap for all the
330 different types of cards which fall under the jurisdiction of the
RBA of -
i) 850 basis
points above the RBA
Overnight Cash Rate as the maximum annual on-going
interest rate charged by
Credit Card Issuers in Australia for
Purchases, where Credit Card Issuers can reach, but not exceed, this Purchase Interest Rate Cap;
ii) 950 basis points above the RBA
Overnight Cash Rate as the maximum
annual on-going interest rate charged by
Credit Card Issuers in Australia for
Cash
Advances, where Credit Card Issuers can reach, but not exceed, this Cash Advance Interest Rate Cap - refer
50% cap on cash advances in D) below; and
iii) $90 for the
maximum Annual Credit Card Fee that a Credit Card Issuers can charge
(in 1993
restrictions on annual fees for credit
cards were removed, so it is not unreasonable to introduce a cap,
particularly as some cards charge inordinately high annual fees to provide
'inter alia' high loyalty points which surprisingly avoid income and FBT
taxes.)
(b)
learning from point 1. of CBA's research in Section 4, set an 'Access Regime'
that each
credit card issued in Australia to a person who has
not previously owned a credit card be a Provisional Charge Card,
hereinafter PCC, with a conservative credit limit where the owner of the
PCC is required for the initial 12 months to repay the
outstanding balance on the PCC in full by the due date (9 days from the Issue
Date and 7 days from the normal receipt date for postal delivery) or be subject to severe late fees and restrictions on future
PCC use,
with
deferment of receiving a traditional credit card until the PCC owner complies with the PCC
repayment obligations for 12 months without breach.
C) reduce the non-interest period from 'up to 55 days' to 'up to 40 days' to reduce the cost burden on
Credit Card Issuers
because electronic payments enable Credit Cardholders to pay their monthly
repayments within a few days of notification of the final monthly balance.
D) continue to sanction the market practice of not providing a non interest period
for
Cash
Advances, but restrict the limit for
Cash
Advances to 50% of the
total
Credit
Card Limit because as
Wikipedia explains -
* "a
credit card is a small plastic card issued to users
as
a system of payment"; and
* the original cards
"required
the entire bill to be paid with each statement".
E) increase the
minimum repayment required from 2.5% to 25% of the outstanding debit balance
which shouldn't faze >60% of
Credit Cardholders and will materially reduce the
interest burden on the remaining <40%.
F) allow Credit Card Issuers to levy -
a) an explicit 'Lost Card Fee' for -
* placing a stop on an account; and/or
* issuing a replacement credit card(s) commensurate with the cost to the
Credit Card Issuers of
issuing a replacement credit card(s); and
b) a 'Fraud Provision Fee' upon each
credit card user each month based on the quantum of transactions and the
outstanding undrawn indebtedness (eg. for a credit card user with a $5,000
credit limit, who made 10 purchases in a month, with an outstanding undrawn
balance of $3,000 (vulnerable to fraudulent access) the 'Fraud Provision Fee'
for that month would be say 10 @ 0.15c = $1.50 + say $3,000 @ 0.0003c = $0.90 for a total monthly
'Fraud Provision Fee' of $2.40 for enjoying the convenience of using a
credit card
for 10 transactions with a $5,000 credit limit.
G) establish a
uniform credit evaluation methodology that all Credit Card Issuers must
observe similar to
NAB's Microenterprise Loans
because to many Australian adults are obtaining credit cards
with excessive interest rates which would be lower if the defaults were lower
due to a robust standard credit analysis methodology.
H) prosecute the
case on behalf of the "unlucky" Australians with
Baycorp Advantage
'et al'
and the
Credit Card Issuers to establish and
regulate protocols and systems so
"unlucky" Australians cannot obtain
between 6 and 10 credit cards, as evidenced by
Tony Devlin, Head
Financial Counsellor,
Salvation Army's Moneycare service, in Section 4 above.
Attachment 'C'
and
Attachment 'D'
provides authority for the RBA Board and the
PSB to -
I. pursue A)
to H) above;
and
II. inform the Government that the RBA's monetary and banking policy needs to
regulate to implement B)(a) and B)(b) above
"for the economic prosperity and welfare of
(ALL)
the people of Australia"
and not merely the "lucky" ones.
9.
Our previous Prime Minister called for more regulation to mitigate the causes
of the GFC
In Feb 2009,
"The Monthly", published an essay by the then PM, Kevin Rudd, titled "The Global Financial Crisis" which
made a palpable case that the neo-liberalism ideology, which the essay argued had
prevailed amongst the 'Financial Market' from 1973 to 2008, had -
a) failed
unequivocally; and
b) must be replaced by social democracy to 'inter alia'
"..........prevent liberal capitalism from cannibalising
itself" and
".....also devising a
new regulatory regime for the financial markets
of the future."
That essay
contained the words -
*
'social democracy' (a central role for government in the
regulation of markets and the provision of public goods)
21 times; and
*
'neo-liberalism' (unrestrained free-market ideology)
13 times.
It was a
significant admonishment of the flaws and failings of the latter financial
markets ideology from a Prime Minister of Australia.
Below is one
pertinent extract:
"The intellectual
challenge for social democrats is not just to
repudiate the neo-liberal extremism that has
landed us in this mess, but to advance the case
that the social-democratic state offers the best
guarantee of preserving the productive capacity
of properly regulated competitive markets, while
ensuring that government is the
regulator............ and that
government offsets the inevitable
inequalities of the market with a commitment to
fairness for all."
The thrust of
this letter is for the inequalities of credit cards available from Credit Card Issuers to be corrected with a commitment to
"user pays" -
*
"...to achieve fairness for all";
and
*
".....to rebuild confidence
in properly regulated markets."
In
"slamming" neo-liberalism, Kevin Rudd highlighted Alan Greenspan's public mea culpa admission. Alan Greenspan had recently conceded in
testimony before Congress that his ideological
viewpoint was flawed, and that the "whole intellectual edifice" of modern risk management
had collapsed. Chair of the
Congressional Committee on Oversight and
Government Reform, Henry Waxman, questioned Greenspan further:
"In other words, you found that your view of the
world, your ideology, was not right; it was not
working?"
Greenspan replied, "Absolutely, precisely."
10.
Our current Prime Minister is committed to credit card reform
Our current
PM, Julia Gillard is also committed to -
*
help give hard working Australians a
better deal when it comes to credit cards; and
*
"...delivering reforms that
strengthen protections for consumers and give regulators the tools they need to
enforce the law."
- pg
4
Seemingly
from the below indented extract our current PM is in favour of ASIC
exercising its rights under
The National Consumer Credit Protection Reform Package
where
"....civil penalties for licensee misconduct ..... enable ASIC to seek heavy fines of up to
$220,000 for an individual and $1.1 million for a corporation."
"Under the new national code,
credit providers face possible imprisonment for up to two years for serious
breaches of the responsible lending conduct requirements or heavy fines of
up $220,000 for an individual and $1.1 million for a corporation."
- pg 5
11. Regulation v De-regulation
This letter seeks
the RBA to prosecute the case against the other powerful lobby groups (particularly the Credit Card Issuers) on behalf
of the "unlucky" Australians (nearly
half of the population with either level 1 (the lowest level) or level 2, both
below the minimum level deemed necessary to participate in a knowledge-based
economy (level 3) so Credit Card Issuers employ the
User Pays Principle
with -
i) an
annual interest rate (for indebtedness beyond the interest free period) that
reflects the real cost of funds and real credit risk; and
ii) an annual fee that reflects the marginal cost
of providing the card and servicing the account.
The naysayer would argue that the RBA would be
creating a nanny state.
Sections 9 and
10 above which followed Alan Greenspan's public
mea culpa
is just one
example of a litany of regulatory reform across Western economies where
regulators ultimately opted for greater regulation after the 'free market' had
become too greedy or rendered economies too unstable.
The swings
between laissez-faire and 'robust regulation' are as common as big
organisations swinging between spreading power/decision making authority away
from the centre (Head Office) to local branches (decentralisation) because they
contend that one size doesn't fit all and perceive economies. And
then 5 or 10 years later a new management recentralises control because they
perceive economies.
History
evidences that some de-regulation is beneficial and some not so. The financial sector regulations which
operated through the '70s restricted competition among the banks and diverted
some of the resulting cartel profits to cross subsidise lending to home owners -
providing a cheap pool of funds for discounted home finance which evidenced
Australians to have a very high level of home ownership. But the cartelisation
of the banks eventually led to an expansion of banking activities by NBFIs, so
that the regulations which had once boosted bank profits ended up restricting
their ability to compete with NBFIs. Consequently the banks were not
hostile to many aspects of the proposed deregulation of the financial system,
and accepted others, e.g. the opening of the sector to new entrants, as an
inevitable price to be paid for being allowed to compete aggressively with the
NBFIs. During my brief exposure to working in CBA branches between 1970
and 1974, I recall that the banking acts regulated the maximum interest rate that
any bank could offer at -
* 6½%
on savings investment accounts (minimum account balance of $500, deposits and withdrawals must be $100 or greater and 7 days written notice to the bank for all
transactions); and
* a paltry 3¼% on passbook accounts.
Building societies, credit unions and other
NBFIs were offering materially higher investment rates and drawing monies away
from the banks. Initially, regulators looked at bringing these NBFIs under the same regulations. However, in 1979 the
Campbell Committee opted to remove the caps on bank investment deposits.
Some assert that deregulation of
the housing finance market in the USA under the Clinton administration was a
catalyst to the GFC.
Restrictions on annual fees for credit cards were removed in 1993
which enabled increased application of the
User Pays Principle.
Some deregulation is generally
beneficial, whereas some proves to be otherwise. Presently, as pointed out above
the
Wholesale Supply Side appears adequately regulated, whereas the
Retail
Supply Side is bereft of prudential regulation, whereupon 'caveat emptor' is the only
safeguard. Alas, as the afore-mentioned
2010 Productivity Commission's report
found
nearly half on Australia's 22.8 million population are "unlucky"
Australians who do not possess requisite literacy and numeracy skills
to be 'aware buyers' not just of consumer goods, but also credit card
offers akin to the
ANZ First Visa card, particularly
"unlucky" Australians who suffer from 'Compulsive Buying' substance addiction.
Australia's
healthcare system is heavily regulated, politically contested and subject to
considerable media and public scrutiny. Australians enjoy a highly
cost-effective health care system by world standards. The downside is that
professionals in health, ranging from doctors, dentists, optometrists,
pharmacists etc., do not receive the same level of remuneration than
counterparts in the USA, Canada, France, UK etc. By comparison with the
enormous focus on cost containment in health care servicing across Australia,
alas the
Retail Supply Side of the credit card system lacks
"cost-based benchmarks".
It wasn't regulation, but a 'class action' brought by Maurice Blackburn that has
evidenced all banks materially reduce their late-penalty fees for credit cards,
and abolish or reduce dozens of other fees over the past two years.
Seemingly banks have over-priced their credit card
'late payment fees' relative to the economic cost suffered due to holders'
late payments.
12.
Conclusion
The arguments presented above
-
(i) establish
that literacy and numeracy skills
for nearly half of the population were
assessed at either levels 1 (the lowest level) or 2, both of
which are below the minimum level deemed necessary to participate in a
knowledge-based economy (level 3)
as ascribed by the Productivity Commission's report
Links Between Literacy and Numeracy
Skills and Labour Market Outcomes dated
Aug 2010;
(ii) bestow a
'proxy role' on the RBA to be the lobbyist for "unlucky" Australians, many of whom do
not possess requisite skills to manage their personal finances, nor do they
enjoy the negotiating acumen of some of the powerful lobby groups in the
Wholesale Supply Side (listed in Section 2 above) to press their own case
for the interest rates on credit cards to be based on the cost of funds and
credit default risk, not
set 1,600 to 1,700 basis points above the RBA Official
Cash Rate; and
(iii) behove the RBA's Board to
-
(a) regulate the
Retail
Supply Side of the credit card system to
apply
"cost-based benchmarks"
to achieve a
"user pays" structure as requested in Section 8 above; and
(b) inform the Government, pursuant to
section 11 "Differences
of opinion with Government
on questions of policy" of
The Reserve Bank Act 1959, as amended,
that the RBA's monetary and banking policy needs to
regulate to implement B)(a) and B)(b) above
"for the economic prosperity and welfare of
(ALL)
the people of Australia"
and not merely for "lucky" Australians who are
proficient
to participate in a knowledge-based economy because they are assessed to be level 3
and do not over-commit immediately prior to an economic slowdown.
13.
Postscript
Whilst the
need to adopt the
User Pays Principle in the
Retail
Supply Side of the credit
card system is palpable, it is more difficult to expect
one country in particular to similarly 'pay for what it uses'. The US central bank issues
Federal Reserve Notes to raise capital to fund its federal expenditure and to
retire maturing debt (notes). The RBA does similarly by issuing
Commonwealth Government Bonds. However, it
seems dishonest for the U.S. to apply the misnomer of 'quantitative easing'
(the practice doesn't 'ease' the quantity of money, it increases the quantity) by merely
printing more 'green backs'
ex nihilo to retire debt which looks horribly like
stealing from other countries who 'pay for what they use'. But the G7 and the G20
are
silent to the injustices upon the rest of debtor, and indeed creditor, countries of this practice
as the US contemplates QE3. Perhaps because
the Gs recognise that if the USA (350m of 7b global population = 5%
of global
population, but accounting for up to 25% of global emissions from consumption) became insolvent, the consequences would
be a global
meltdown which could be 10 times more catastrophic than the Great Depression.
But does that still make it OK for the US to print money to avoid 'paying for
what it uses' when "not living within its means"? Our Federal Treasurer has called for EU countries such as Greece, Italy, Portugal and Spain
to accept austerity measures to live within their means. Why isn't
Wayne Swan
beseeching the US to do likewise? If I
was to print Aust $10 notes to pay my debts, the RBA, and perhaps a few other
federal agencies, would be down on me 'like a ton of bricks' with
seemingly valid righteous resolve. But I would only be doing what
the US does to the rest of the world.
The US has enjoyed a 'privileged ride' because of Bretton Woods.
The Gs should be looking to reduce the impact of
global hedge
funds pushing up the USD each time there is a financial crisis, perhaps by
having more large transactions written in Euros or GBP and any other mechanism
at their disposal including increased regulation and financial reporting.
On the face of it regulation of hedge fund managers and registered schemes by
ASIC in Australia is far-reaching comparable to other jurisdictions.
Seemingly, US hedge
funds are not governed by the same regulations as other US
managed investments or mutual funds. The majority of hedge fund managers are
domiciled in the US where
hedge
funds are not supervised like Securities and
Exchange Commission registered mutual funds, as
hedge
funds are not currently
required to register with the SEC.
Just as
Alan Greenspan
conceded before the US Congress that his
ideological viewpoint that free markets shunning certain regulations was flawed and Maurice Blackburn had caused the banking sector to reprice its fees, the writer of this letter
believes that central banks have similarly 'got it wrong' by being too close to
Credit Card Issuers to the detriment in this country of many "unlucky"
countrymen. I am sure that the
WEF would agree
(Section 5 above). Alas, the problem is universal across the Western World. The Lucky Country can lead the way
to reform through regulation because banks continue to report
excessive profits. The 'mature'
industry of banking, with high barriers to entry, should not be reporting record
profits, with the senior executive and board members remunerated excessively,
relative to the other 99% of their employees.
The focus on addressing the
adverse effects of climate change is a return to pre-1990 emission
levels. A similar parallel exists in the distribution of remuneration with
pie charts of the remuneration of
major banks between 1990 and today highlighting an alarming injustice trend.
The piece of the pie which feeds exec. management, the board and a few 'whiz kid'
dealers is getting wider and wider, with the rest of the pie to feed the
remaining 99% of banks' employees commensurately narrower. What has changed to justify
exec. management, boards and a few money market manipulators earning
between 3 and 13 times more than they did 21 years ago?
SMH 'Business
Day' article "Middle class hit by debt
-
Huge
mortgage repayments and credit cards bills are taking their toll"
alludes to the social problems resulting
from excessive credit card debt and the financial counselling involved in
seeking to mitigate the fallout. Merit patently exists in the bank
chartered with "....the
economic prosperity and welfare of the people of Australia"
treating the cause of the problem rather than counsellors
attempting to put bandaids on the all too often horrendous effects.
NB: In 1985 when I worked in Representational
Network at CBA, the then Chief Manager, Deposit Services, Peter Andrews, asked
me to write a paper on CSB introducing explicit fee pricing for the traditional
passbook accounts because customers were increasingly depositing cheques into their passbook
accounts, thereby reducing fee income from CTB
cheque accounts and increasing servicing costs on savings accounts. Coupled with this, the implicit interest margin between
where CBA bought money through savings investment accounts (capped by regulation @ 6½%
'til 1980) and
deposits into savings accounts (capped by regulation @ 3¼% 'til 1980) and where it sold (lent) money
through loans was eroding due to NBFIs (building societies, credit unions,
Estate Mortgage Trusts, Equiticorp 'et al') attracting a lot of previously high balance
savings account balances. A month later after reading copious banking journals
from the USA and the UK about how their banks addressed the same problem, my
15 foolscap pages titled "The Application of Fee Based Income to CSB Passbook Accounts" which sought to apply the
User Pays Principle went
up to Peter Wilson, Chief General Manager, Retail Banking HO. I
was told later that Peter Wilson had supported my paper, but thought it better
for one of the other Pillar Banks to be the first to introduce such fees
which would be politically sensitive, and Commonwealth Bank was still viewed by
Australians as the peoples bank. The need for 'fee-based income' re-surfaced in CBA in 1987
whereupon I sent my memo submission to the new Chief Manager, Deposit Services,
Jim O'Ryan,
who sent back a thank your response note after
reading it. I retain a copy of that submission paper.
Times have changed with bank fees these day applying the
User Pays Principle
scrupulously, except to the
Retail Supply Side of credit cards which is
All Smoke and Mirrors.
Yours sincerely
 Philip Johnston
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