Westpac accuses Government of acting in bad faith

At least one bank has accused the Australian Government of turning its back on an "in-principle agreement" with the industry over its changes to credit card rules. Yesterday, Westpac released its submission in response to the draft bill amending credit card and home loan regulation, in which it says it is "deeply disappointed" with the draft.

The bank is critical of several aspects of the draft, including the decision to apply the rules to all cards (not just new cards); the introduction of a mandatory buffer scheme, and the broad scope of the ban on card issuers making offers to customers.

Last Friday, the Government released an exposure draft of the National Consumer Credit Protection Amendment (Credit Cards and Home Loans) Bill 2011. It includes a ban on credit card over-limit fees and a ban on unsolicited credit-limit extension offers without the prior consent of the consumer.

The amendment also places strict limits on how much credit-card holders can go over their specified limits. The bill establishes a default buffer of the lesser of $500 or 10 per cent of the credit limit as the allowable over-limit spending.

The bill also contains a requirement that credit card providers allocate repayments to higher interest rates first. And it makes it mandatory for credit card application forms to include a clear summary of key account features. It also introduces a requirement for home loan lenders to give potential borrowers a key-facts sheet, so they can make comparisons between loans.

Westpac's submission says: "We believed that recent meetings appeared to resolve outstanding issues based on practical difficulties we had raised. We believed we had an in-principle agreement on most outstanding issues.

"The Government's election commitment was clear and explicit: 'These changes will apply to new credit cards.'

"To be informed at the release of the draft bill that its scope has been dramatically broadened is extremely disappointing."

Westpac is concerned about the operation of the buffer. "We now have a situation where a buffer has been mandated in legislation, with customers being required to opt out if they do not wish to take advantage of the buffer.

"The presence of the buffer in the legislation will have the effect of misleading consumers into believing they have an additional 10 per cent limit available if they choose, which is not and was never intended to be the case.

"To operate effectively the buffer would not be advertised to customers but remain at the discretion of a bank, based on credit assessments at the time of the transaction.

"Allowing over-limit transactions is a service provided by credit providers to customers for a fee. Where credit providers are no longer able to recover their costs from the provision of such a service, we would expect to see a decline in the number of over-limit transactions approved across the banking system."

The submission says the Government's ban on unsolicited credit limit extension offers has been significantly broadened from that set out in policy last year. It now captures express offers of additional credit, as well as invitations to customers to apply for additional credit, subject to a credit assessment. It also catches any communication that may be deemed to have the purpose of encouraging customers to apply for additional credit.

The submission says: "This is contrary to the rationale of responsible lending and matching credit to the needs of consumers, which at times will involve both decreases and increases in customer credit limits."