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Sam Dastyari questions RBA payments powers - SMH - Shaun Drummond   -  Sep 2, 2015

The Reserve Bank should lose its power to regulate payments because it lacks a consumer mandate and is failing to fully consider the impact of its decisions, argues Labor senator Sam Dastyari.

He said its Payments System Board – which runs the real-time payments system and governs all transaction rules – is too secretive and has a focus that is too narrow.

"It is run like a secret society. No one can explain why this is a function retained by the RBA," he said. "The Payment Systems Board is the least transparent, most secretive and poorly understood government body that is responsible for every transaction that takes place in this country."

Senator Dastyari is heading an inquiry into why in an ostensibly highly competitive credit card market, interest rates on cards have stayed an average of 13-17 per cent since the cash rate started falling in late 2011. The inquiry will hold its second public hearings in Melbourne on Thursday

Witnesses to the inquiry have said the average interest rate on standard cards has in fact been up near 16 to 17 per cent on average since 2007.

"I can understand why monetary policy is kept at arm's length from government, but payments should be government policy," Senator Dastyari said. "Its functions more appropriately fit within ASIC or APRA. Why are we treating this as some completely independent function when really this should be policy."

The Reserve Bank points out it set up the Payment Users Consultation Group this year alongside the new Australian Payments Council to connect with industry. It has also conducted numerous consultations on its present payments review and will do so again in November.

Credit cards are a payment and a loan instrument, so the RBA covers the payment side and ASIC the lending aspect. Payments were regulated for the first time in 1998 after a recommendation of the Wallis Inquiry.

Even though the RBA sets the cash rate – the short-term rate at which banks lend to each other – there is no agency that directly regulates interest rates. Recent amendments to responsible lending laws set annual caps on unsecured "small-amount" or "short-term" payday loans of 48 per cent. This doesn't cover credit cards, which have no term limit.

But the inquiry has prompted the Council of Financial Regulators, which includes all financial regulators plus Treasury and the ACCC, to discuss credit cards for the first time, in November.

RBA assistant governor financial system Malcolm Edey said last week the payments board publishes press releases about its decisions, but said it was harder to publish full minutes because there was often more commercially sensitive information discussed than at the RBA board.

Mr Dastyari also wants the RBA to delay any decision on cuts to merchant fees paid to banks for accepting credit cards, which it is considering in its present review of payments regulation. On Friday the RBA released a statement saying it is looking at regulating bank-issued American Express cards as well as MasterCard debit and pre-paid cards for the first time, which is a precursor to cuts to these interchange fees.

He said there were opposing views, even among similar consumer groups, on whether any cuts to this $2 billion revenue source will end up hurting consumers via higher fees or interest.

"They should be holding back on this to allow a public discussion to take place," Mr Dastyari added. The RBA could make final decisions on its review by the end of the year and there has been no indication it will delay its decisions for the inquiry.

Mr Dastyari said there appeared to be a lot of choice in credit cards but no real competition because consumers were enticed by interest-free periods and did not expect to end up paying interest. Evidence submitted to the inquiry suggests it is poorer people that pay most of the interest.

He said the inquiry's recommendations won't be made until the end of the year, but he was in favour of a "floor" that sets minimum repayments, which include principal and interest, similar to new rules in Britain. 

Consumer advocates have also called for a limit on terms of three years, rather than the present industry-set minimum repayments and uncapped terms.

CHOICE also argues banks should give consumers easy access to their transactions data so it can be plugged into online calculators to work out what a credit card will probably end up costing them.

Some have also called for people to be able to have a single credit number, like they do mobile numbers. But MasterCard told the The Australian Financial Review it was impossible to do this at present. 

"Payment card BIN ranges are allocated by the International Organisation for Standardisation to all international payment schemes and domestic issuers. These card payment numbers are owned by various organisations across the world. Furthermore, MasterCard's global systems are designed to switch transactions at a higher BIN level, not at a 16-digit card number level," MasterCard division president Australasia Eddie Grobler said.