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

6th Question

Will the Royal Commission ask the Governor of the Reserve Bank if the Senate 'Economics Reference Committee' summary report titled Interest rates and informed choice in the Australian credit card market dated Dec 2015 was correct when it justified (in below extract from page 3) Dr. Edey's response (listed in Question 5) when Dr. Edey was being questioned about excessive Credit Card interest rates on 1 June 2017 by asserting that the ACCC is responsible to monitor and regulate credit card interest rates, even after the RBA had Designated, established an Access Regime and Determined a Standard/s:

"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."

 

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Supporting Documented Evidence re 6th Question

1.        Australia's 'central bank', the RBA -

 (A)       had previously capped Credit Card interest rates @ 18% until April 1985 relying upon Section 50 of the Banking Act 1959; and

 (B)       the RBA imposed an Access Regime on the three previously designated Credit Card Schemes in Aust on 23 Feb 2004 " ..... for competition and access....".

 The RBA is empowered to 'designate' and regulate payment schemes under the Payment Systems (Regulation) Act 1998, and has a mandate to 'promote efficiency and competition in payments systems consistent with the overall stability of the financial system'. Consistent with this mandate, the RBA's Payment Systems Board (PSB) regulates card payment schemes in relation to matters such as interchange fees, surcharging and scheme access.

 The RBA designated the MasterCard and Visa payment schemes in April 2001, and, as explained in the next section, both schemes have been subject to interchange and other regulations since 2003. Three-party systems—most notably American Express and Diners' Club, but also China UnionPay, JCB and PayPal—are not designated (although, as noted below, American Express companion cards have recently been designated).

 Hence, the ACCC's obligations regarding pursuing competition amongst Credit Card Issuers were subrogated to the RBA on 23 Feb 2004 because the RBA imposed an Access Regime on the three previously designated Credit Card Schemes on 23 Feb 2004, pursuant to Division 3—Access to designated systems - Subdivision A—Access regimes - 12  Imposition of access regime and has subsequently set other Standards chronicled in Credit Cards Regulatory Decisions pursuant to Division 4, Section 18 of the Payments System Regulation Act 1998.  This re-assignment of responsibility for ensuring 'competition' to the RBA is set out in the MoU between the ACCC and the  RBA dated 8 Sept 1998.

 How could a very senior representative of the RBA with over 20 years experience working for the RBA not know that the RBA shouldered all of the ACCC's obligations re ensuring competition from 23 Feb 2004?  It defies belief for Dr. Edey to have responded "What we do have is an ACCC that can investigate uncompetitive conduct if they see it, but they clearly have not seen it in this market". 

 

 The above extract from an address by Dr. Malcolm Edey (RBA) contradicts the below indented 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."

2.       The Reserve Bank's publication Payment, clearing and settlement systems in Australia - 2011 includes the following extract that would have allowed the RBA at any time to determine if a particular cohort of Credit Cardholders, namely those with poor Financial Literacy Capacity, were being Unconscionably burdened with paying the costs of Credit Card Issuers' providing Revolving Line/s of Credit to Transactors, frequently -

            *        with no or an immaterially Annual Cardholder Fee; and

            *        providing Rewards Programs:

                            "The Payment Systems (Regulation) Act 1998 also gives the RBA extensive powers to gather information from payment system participants and operators."

3.        RBA webpage Relationship with the Australian Competition and Consumer Commission (ACCC) includes:                   

"The MOU makes it clear that:

  • the ACCC is responsible for ensuring that payments system arrangements comply with the competition and access provisions of the Competition and Consumer Act 2010, in the absence of any specific Reserve Bank initiatives. Under its adjudication role, the ACCC may grant immunity from court action for certain anti-competitive practices, if it is satisfied that such practices are in the public interest. It may also accept undertakings in respect of third-party access to essential facilities; and

  • if the Reserve Bank, after public consultation, uses its powers to impose an access regime and/or set standards for a particular payment system, participants in that system will not be at risk under the Competition and Consumer Act 2010 by complying with the Bank's requirements.

The effect is that the ACCC retains responsibility for competition and access in a payment system, unless the Bank designates that system and follows up by imposing an access regime and/or setting standards for it. If the Bank does so, its requirements are paramount. Designation does not, by itself, remove a system from the ACCC's coverage."