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

27th Question

Will the Royal Commission ask the Governor of the Reserve Bank what investigations the Reserve Bank have undertaken with -

a)        Credit Card Issuers, 

b)        the three Credit Reporting Agencies, 

c)        Financial Counsellors; and 

d)        Credit Card Distress Authorities,

to understand the -

1.        number of Credit Cardholders that are experiencing Extreme Financial And Emotional Distress; and

2.        the various financial quanta of that distress?

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Supporting Documented Evidence re 27th Question

1.         The Reserve Bank's carries responsibility to the economic prosperity and welfare of the people of Australia, as decreed under Reserve Bank Act (1959), Part II, Section 10, and its ''extensive powers' under The Payment Systems (Regulation) Act 1998 to gather information from a payment system or from individual participants", in particular under Section 10(2) 'Functions of Reserve Bank Board' of Reserve Bank Act 1959 to "best contribute to.......... the economic prosperity and welfare of the people of Australia" and for the Payments Systems Board to always Act in the Public Interest. What investigations has the Reserve Bank undertaken with -

            (a)       Credit Card Issuers;

            (b)       the three Credit Reporting Agencies; and

            (c)        Financial Counsellors,

            to seek to identify the -

            (i)         number of Credit Cardholders that are experiencing Extreme Financial And Emotional Distress,

            (ii)        financial quanta (quantums) of that distress;

            (iii)       evidence of that distress and

            (iv)       categories of numbers of Credit Cards held by these distressed Credit Cardholders?

2.        Below are extracts from Reserve Bank of Australia Bulletin  -  July 1998 - Australia’s New Financial Regulatory Framework that chronicles the Reserve Bank's powers, set out in the Payment Systems (Regulation) Act 1998, that allow the Reserve Bank to undertake more direct regulation of ‘designated’ payments systems to –

"... promote competition in the market for payments services, consistent with the overall stability of the financial system..." when it judges it to be "in the public interest" which may involve the imposition of access rules or operating standards for participants in such systems:

"The new Payments System Board is responsible for the Bank’s payments system policy, the objectives of which are:

•     controlling risk in the financial system arising from the operation of the payments system;

•     promoting the efficiency of payments systems; and

•     promoting competition in the market for payments services, consistent with the overall stability of the financial system.

The Bank’s powers in this area, set out in the Payment Systems (Regulation) Act 1998, allow it to undertake more direct regulation of ‘designated’ payments systems when it judges it to be in the public interest. This may involve the imposition of access rules or operating standards for participants in such systems. The Act also provides a framework for regulation of purchased payment facilities, such as travellers cheques and stored-value cards."

3.        Chapter 7. includes a table with green background titled "Extracts that evidence that Financial Counsellors are familiar with Unconscionable advertisements and Predatory Lending that tempt many Revolvers with low Financial Literacy Capacity into horrendous Credit Card Debt Accruing Interest" that includes several quotations from Financial Counsellors from the "coal face". 

4.        Anecdotal evidence from charities/community organisations such as Salvation Army's 'Moneycare' service, St Vincent de Paul's Budget and Financial Counselling Service, Wesley Mission's Credit Line, as well as Aust. Financial Counselling Assoc and Financial Counsellor's Association of Queensland, indicate that -

           (a)      over 50 per cent of Credit Cardholders that are experiencing Extreme Financial And Emotional Distress and seek help from a Financial Counsellor have Credit Card Debt Accruing Interest that exceeds $10,000 (spread over on ave 5 Credit cards);

           (b)      "...it is not unusual for a client to have credit cards whose aggregate limits exceed their yearly income";

           (c)      5% have Credit Card Debt Accruing Interest that exceed $100,000 spread over in excess of 15 Credit Cards; and

           (d)      that this problem of Credit Cardholders that are already experiencing Extreme Financial And Emotional Distress obtaining more Credit Cards which exacerbate their distress, dates back at least 20 years. 

 

5.        At least a dozen times each year a Financial Counsellor that works for one of the 44 charities/community organisations (that employ over 500 Financial Counsellor collectively and receive $43 million from the state and federal Govts to pay the Financial Counsellors' salaries) will assist an individual Credit Cardholder, or a couple, that is/are experiencing Extreme Financial And Emotional Distress, with aggregate Credit Card Debt Accruing Interest that exceed $150,000 spread over in excess of 15 Credit Cards.

6.        The biggest debt Alexandra Kelly has seen on a single card is $90,000, while clients with multiple cards can end up owing hundreds of thousands of dollars.

"We have had cases of people who have accrued debts of $100,000 or $200,000 on multiple cards - that is the worst case scenario," she said.

7.         Below are two extracts from a speech in March 2006 by David Tennant, Chairperson, Australian Financial Counselling and Credit Reform Association at their Annual Conference in Qld: 

"Queensland is the host state and custodian of the national consumer credit regulatory regime. It is also the home base of some of the worst financial scams and unscrupulous market conduct in the country. Many of these scams spread south and west much faster than the cane toad has so far been able."

"A key responsibility the financial counselling community shoulders in responding to its client base is to ensure the experiences those people report are recorded and appropriately considered in service design and policy, social action and law reform activities. Sadly, the otherwise rich data pool that the 450 odd financial counsellors working around Australia have access to, is also fragmented. Representatives from the Commonwealth Financial Counselling Program are here today. I congratulate them on evolving efforts to collect and produce more useful data. The conversation around data collection and usage does require greater engagement with and of the financial counselling community and all of the various funding sources around the country."

8.        Three Credit Reporting Agencies (Veda, Dun and Bradstreet and Experian) provide Credit Reports, Credit Scores and marketing analytics services, ostensibly to Credit Card Issuers.  Recently, this triumvirate commenced providing 'on-line' to individual Credit Cardholders their Credit Report and Credit Score at no fee.  These three Credit Reporting Agencies do not share their data, so it is necessary for Credit Card Issuers to source Credit Reportsand Credit Scores from each of these three Credit Reporting Agencies when undertaking due diligence to determine whether an applicant should be issued the Credit Card it has applied for and the Card Limit.