THE government has signalled a fresh crackdown on the banking industry, with plans to scrap over-the-limit fees on credit cards and ban banks from offering credit limit upgrades to customers.
Draft legislation published by Treasury shows the government has toughened retail banking reforms promised during the election and as part of a reform package released in December.
The proposals, which will cost the industry millions of dollars in fee income each year, will also force banks to allocate card repayments to high-interest debts first and make it mandatory for credit card applications to outline a summary of account features.
The banks will also have to provide mortgage customers a key fact sheet that can be used to compare home loans with rival banks’ products.
The draft bill is expected to be introduced into parliament in the next fortnight.
The banking sector last night criticised the changes and the timing of the legislation, as the government allowed only three days for consultation and submissions.
The proposed changes come on top of the government’s flagged moves to abolish exit fees on home loans and a crackdown on price signalling among banks.
The changes on exit fees alone will cost the major banks more than $300 million a year.
The big banks are expected to argue strongly against the move to ban over-the-limit credit card fees, which they have said in the past are legitimate charges for providing a service.
Australian Bankers Association chief executive Steven Munchenberg said the government’s legislation was tougher than the banks had expected.
“The problem that we see is that when a new customer comes into a bank now for a credit card the bank will be conservative about what they will give them until they show they can service that debt and meet their repayments,” Mr Munchenberg said.
“Then, after a year, a bank will write to them offering an increase.
“Now they will be banned from doing that, so there’s a situation where either the customers will have to ask the banks, or else the banks could provide a larger credit amount upfront.”
Mr Munchenberg said the banks were becoming increasingly worried that the government could ban more fees and charges, despite the recent changes. “We have had the exit fees, and now over-the-limit fees are going to be banned,” he said.
“There’s a tendency for the government to price-control bank fees. That concerns us. If they are prepared to do that, what other fees are they going to start to ban?”
Clayton Utz banking partner Steven Klimt said the government’s consultation period was too short for the industry to meaningfully participate.
The legislation is expected to come into effect from July 1.
“The government is doing this with a great deal of haste,” he said.
“The consultation period is way too short, and having such a short amount of time there is a risk that they might come up with legislation that does not achieve the objectives and one that results in the burden being increased.”
Mallesons special counsel James Moore said the government had an “aggressive timetable” and a July implementation was too soon to allow the major banks to prepare for the changes.
“All of the credit legislation changes over the past eight months have had extremely tight consultation periods, which have made it almost impossible for the financial institutions” to gather information to give the government feedback, Mr Moore said.