Thirty Two Questions and Supporting Evidence    Submission Letter to Royal Commission April-2018    Defined Terms & Documents  

14th Question

Will the Royal Commission ask the Chair of the Council of Financial Regulators to provide a schedule (to the Royal Commission) of the respective responsibilities of the RBA, APRA and ASIC (and the clauses relied upon in their respective Acts listed at the top of this letter), that satisfy the Terms of Reference and Statement of Expectations required under the PGPA Act, that obligates each regulator to ensure competition amongst Credit Card Products which involves seeking information to establish that Credit Card Issuers are not engaging in Numeracy And Literacy Discrimination through Unconscionable Credit Card Advertising targeted at Credit Cardholders with low Numeracy and Literacy Skills?

 

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Supporting Documented Evidence re 14th Question

 

 

1.         Based on the below and above referred responses by Dr. Edey on 1 June 2017, the Council of Financial Regulators has breached its Statutory Duties with regard to understanding Extreme Financial And Emotional Distress experienced by many Persistent Revolvers that pay for the Lines of Credit enjoyed by Transactors at virtually no cost and often receiving tax-free Rewards Programs:

Senator XENOPHON: The amount of credit card debt is $45 billion to $48 billion—$33 billion accrues interest. We are sort of talking about the numbers of the Rudd stimulus package in 2009. It is a lot of money in the economy. What I am trying to understand is this: you said that the banks say that the interest rate is greater because of the risk factor. Has the Reserve Bank tested, in terms of the default rate for the banks, whether it has gone up over the years, and that is why the gap has increased and turned into a chasm? Have you checked that? That seems to be what the banks are saying: more risk; therefore higher interest rates. Has the increase of interest rates, in relative terms, been due to an increase in defaults?

Dr Edey : We have not tried to test that.

Senator XENOPHON: Shouldn't that be tested though? That is an underlying assertion on the part of the banks.

Dr Edey : I think it is well worth somebody's while to test that.

Senator XENOPHON: Is it worth your while?

Dr Edey : The reason we have not done it at the level of detail that you are suggesting is we do not have separate data on loss rates—

Senator XENOPHON: Have you the right to demand that of banks?

Dr Edey : That would be APRA territory to require—

Senator XENOPHON: Right. But you could liaise with APRA to get that information. Is that right?

Dr Edey : I think so.

Senator XENOPHON: But does it concern you, as Senator Dastyari pointed out, with apologies to Elvis, that in terms of debt people are caught in a trap and they just cannot get out of it? Does it concern you that there are many thousands of Australians who are stuck in a debt trap because of credit card debt and very high interest rates, who will not be able to get on with their lives, will not be able to get a decent credit rating and will not be able to get their first home, because of interest rates that appear to be much higher than a well-functioning market would dictate.

Dr Edey : I think it is a problem if people are in that situation. I do not doubt that there are many people who struggle with that sort of issue. But you need to remember that the Reserve Bank has a top-down systemic risk focus. So if there is enough of that happening that it is a risk to the system as a whole, that is our concern.

Senator XENOPHON: But right now it is a known unknown. We just do not know how many people have been deeply affected by credit card debt, and that itself might point to some systemic issues.

Dr Edey : I cannot put a number on how many people there are, but we know how much debt there is.

Senator XENOPHON: It would be desirable to put a number on how many people are deeply affected by credit card debt, would it not?

Dr Edey : I am not sure why quantifying that is an issue for the Reserve Bank. We know how much debt there is. We know what the non-performance rates are on consumer debt. It is only about three per cent—that sort of magnitude.

2.       The RBA regulated the commercial bank between 1960 and the early 1980s 'with an iron fist in a velvet glove' relying upon section 50 of the Banking Act 1959.

3.        Below is and extract from page 2 of ASIC's "Check Against Delivery" dated 6 March 2018 for the Productivity Commission Inquiry into competition in the Australian financial system: Hearings on draft report:

"Regulatory settings

Finally, I would like to discuss regulatory settings to promote competition.

Competition in financial markets is dynamic and evolving. Ensuring effective competition in the Australian financial system is an ongoing process.

Each regulator has a role to play.

As a starting point, each regulator needs the right mandate and regulatory toolkit to promote effective competition."

4.        Below is and extract from page 28 of the Government response to the Financial System Inquiry - Improving Australia's Financial System - 20 Oct 2015:

"The Government agrees with the Inquiry’s objective of strengthening the regulator accountability framework but does not support the creation of a new Financial Regulator Assessment Board.

We consider that new requirements in the Public Governance, Performance and Accountability Act 2013 (PGPA Act) and the Government’s Regulator Performance Framework provide avenues to strengthen regulator accountability along with other existing mechanisms such as Parliamentary hearings.

We will reconstitute the Financial Sector Advisory Council with refreshed Terms of Reference to include providing advice on the performance of the financial regulators by the end of 2015.

We support providing regulators with clearer guidance in Statement of Expectations and consider that the PGPA Act requirements are consistent with the Inquiry’s recommendation for increased use of performance indicators for regulator performance.

We will update the regulators’ Statements of Expectations in the first half of 2016, including providing a Statement of Expectations to the Payments System Board for the first time."

5.       Below is the only reference to Credit Cards in the RBA's Financial Stability Review - Oct 2015:

"In contrast, at around 2–3 per cent over recent years, write-offs on credit card debt and other personal lending have been higher, consistent with some portion of this lending being extended to borrowers with a relatively weak credit profile and on an unsecured basis. Although credit card and personal lending is riskier, it represents only a small share of banks’ total domestic loans."