2nd Question

6.       Point 8. of 'Supporting Documented Evidence re 1st Question' explains that the Writer posted three CDs to Ms. Sharon van Etten at the RBA that -

(i)     asserted that Credit Card Issuers' revenues from Credit Cards on the Retail Supply Side did not accord with the User Pays Principle because Credit Cardholders with poor Financial Literacy Capacity (described by the RBA as Revolvers, some being Persistent Revolvers) were paying the costs of Revolving Line/s of Credit of Credit Cardholders with strong Financial Literacy Capacity (described by the RBA as Transactors); and

(ii)    implored (in Section 8 of the Writer's CD submission to RBA sent 8 Dec 2011) the Reserve Bank to Determine new Standards, to implement 'inter alia' a cap on the Purchase Interest Rate and a cap on the Cash Advance Interest Rate.

Below is the pertinent section of Part B) of Section 8 of the Writer's CD submission to RBA sent 8 Dec 2011:

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 [of this letter to the RBA] 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 official interest 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 official interest 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;"

7. Below are some extracts from Chapter 17 that -

* iterate the reasons why our primary financial services regulator, Australia's 'central bank' regulated interest rates 'with an iron fist in a velvet glove' over Australia's commercial banks until Campbell; and

* summarises those interest rate caps:

Below is an extract from ABC website, 'Australian Banking History':

"Looking back in time, Australian banks collapsed in almost every decade of the 19th century. In 1893 after the failure of fraudulent land banks in Victoria triggered a wholesale run on banks. In the space of six weeks, 12 banks closed their doors. Those banks accounted for two-thirds of the total banking assets in Australia. That crisis increased pressure - which had been building for some time - for the formation of a central bank. The Commonwealth Bank was formed by the Federal Government in 1911 to issue notes which would be backed by the resources of the nation. Banking became more tightly controlled during World War II, with the central bank dictating overdraft rates and, later, statutory reserve deposit ratios and liquid asset ratios. To avoid a patent conflict of interest, the Commonwealth Bank's 'central banking powers' were transferred to the newly formed Reserve Bank of Australia in 1959."

            Credit Losses at Australian Banks: 1980–2013 published by the RBA in June 2015.

           Financial Institution Failures in Australia — Some Case Studies

          The below four quotes from "Overview of Financial Services Post-Deregulation" by (Dr) Diana Beal, Director, Centre for Australian Financial Institutions, University of Southern Queensland, evidence that the Reserve Bank rigorously regulated bank deposit rates until 1980 when restrictions on interest rates were dismantled after adopting Campbell Committee recommendations:

"Interest-rate ceilings on deposit accounts restricted the banks’ ability to attract funds particularly during the 1970s when inflation was rampant. In the June quarter of 1975, inflation rose to 16.9% pa. At the same time, interest payable on amounts held in savings accounts offered by savings banks, for example, was restricted to 3.75% from 1969 to 1980 (Foster, 1996). In contrast, the interest rates offered by non-bank financial institutions (NBFIs) were not controlled and they were able to pay around 10% on passbook accounts."

"Banks in 1980 still operated in a highly regulated environment which was an artefact of previous economic and social conditions. Indeed, an extensive collection of controls remained from regulation introduced under the National Security Regulations in 1941."

"Interest rate ceilings on trading bank and savings bank deposits were dismantled from 1980; some limits on minimum and maximum terms on fixed deposits remained."

          "The maximum interest rate payable on small balances in savings accounts was fixed by regulation at 3.75% from 1969 to 1980."

8. Below is a quotation from Westpac's submission to the Wallis Inquiry 1997 by the then CEO, Bob Joss:

"Also relevant is the Inquiry’s concern with fairness, or the equitable treatment of the various users of the financial system."

"Protection of consumers

On-going monitoring of credit card pricing in anticipation of a substantial inquiry into the effects on consumers of the deregulation of credit card interest rates"

The Writer's investigations suggest that the Wallis Inquiry 1997 did not adopt Westpac's prudent recommendation for on-going monitoring of any changes in interest rates in either its Discussion Paper - Released Nov 1996 or Final Report - Released March 1997.

9. Professor of banking and finance at the University of Canberra, Milind Sathye's SMH article "Banks need reining in, but an act is not the way" on 22 Oct 2010 included:

"Parliament has already conferred powers on the government to control interest rates, under section 50 of the Banking Act 1959."

10. Below is an extract from Chapter Five: Philosophy of Financial Regulation of the Wallis Report on the Australian Financial System dated 1996 - '97: Summary and Critique:

"Regulation of all markets for goods and services can be categorised according to three broad purposes.
First, regulation is to help ensure that markets work efficiently and competitively, and thus to overcome sources of market failure.
Second, regulation can prescribe particular standards or qualities of service, especially where the consumption of goods and services carries risks, so that safety is a focus of concern.
Third, regulation can help achieve social objectives such as, for example, 'community service obligations' which typically take the form of price controls."

11. The U.S. has set the precedent. The interest rate charged for the majority of Credit Cards issued in the USA is based on an agreed margin above the U.S. Prime Rate.

12 consumer protections in the Credit CARD Act informs that the Credit Card Accountability Responsibility and Disclosure Act of 2009, commonly called the CARD Act, is a federal law that changed some of Credit Card Issuers' practices and consumers' rights in the USA.

Below is an extract from a postscript of those 12 introduced reforms:

"If credit card accounts are based on variable APRs (as the vast majority now are), interest rates can increase as the U.S. Prime Rate goes up."

Below is an extract from How Credit Cards Use the Prime Rate:

Many credit cards base their variable interest rates on the prime rate. A variable interest rate is one that changes based on another interest rate.

For example, the APR on a credit card might be the prime rate plus 13%. The interest rate your credit card issuer charges on top of the prime rate is known as the "spread." In our example, the "spread" is 13%. If the prime rate is 3.25%, the current APR on that variable rate card would be 16.25%. That means the prime rate has a direct, but typically small, impact on the finance charges you pay on your credit card when you carry a balance. The higher the prime rate, the more you'll pay to revolve a credit card balance. You can avoid paying any interest at all by paying your credit card balance in full each month.

If your credit card has a variable interest rate based on the prime rate, your credit card interest rate will follow the movement of the prime rate.

If the prime rate goes up, you can expect your credit card interest rate will soon go up. On the other hand, if the prime rate goes down, your credit card interest rate should go down.

Credit card issuers don’t have to give advance notice of interest rate changes if you have a variable interest rate.

12. Money and power - The case for better regulation in banking produced by The Australia Institute Paper No. 4 in 2010 includes the following recommendations:

"The aim should be to reduce bank profits to one per cent or less as a share of GDP, the level they were at two decades ago. Other policy changes that would contribute to this aim include:

•     legislating to ensure that interest rates charged by banks move in line with changes to the RBA cash rate and are set and advertised as a mark-up over the cash rate

•     restricting the interest rates that can be charged on unsecured credit to levels that reflect the underlying risk to the lender.

⎕     Section 5 explains how real people, rather than the consumers of economic theory, make financial decisions, and how banks exploit human nature in their approaches to marketing.

The paper concludes that the high degree of concentration in the banking market and the huge profits it generates are inevitable in a deregulated banking system such as Australia’s. With consumers powerless to change corporate behaviour and new entrants unable to compete on a level playing field, the big four banks are relatively free to gouge as much money from the Australian economy as they are able. Better regulation in banking is urgently needed."

(i) the Reserve Bank and its predecessor the then Govt. owned, Commonwealth Bank, had increasingly regulated 'with an iron fist in a velvet glove' the commercial banks since 1911 as chronicled in Chapter 17; and

(ii) historically when de-regulation resulted in adverse consequences, re-regulation by Australia's 'central bank' ensued.