Treasurer Introduces Treasury Laws Amendment (Banking Measures No. 1) Bill 2017 (Cth)

Friday 20 October 2017 @ 12.52 p.m. | Corporate & Regulatory | Legal Research

Yesterday (19 October 2017), Treasurer Scott Morrison introduced the Treasury Laws Amendment (Banking Measures No. 1) Bill 2017 (Cth) (“the Bill”).  The Bill contains a number of reforms to the banking industry, and is a combination of three bills that were previously released in draft form for public comment and submissions.  The Bill contains amendments to strengthen APRAs ability to respond to developments in non-ADI lending, reduce barriers to new entrants to the banking sector, inserts an objects provision into the Banking Act 1959 (Cth) (“the Banking Act”) and introduces a number of reforms to improve consumer outcomes under credit card contracts.

Introducing the Bill into Parliament, the Treasurer said:

“In this year's budget, the government announced a series of measures that will deliver a stronger, safer financial system, with better competition and consumer outcomes for Australians.

The Treasury Laws Amendment (Banking Measures No. 1) Bill 2017 continues the work of implementing these commitments by further strengthening our financial system…

The Turnbull government is taking action now to ensure a more accountable and unquestionably strong, fair and competitive banking system that does the right thing by Australians.”

Non-ADI lending

The draft Treasury Laws Amendment (Non-ADI Lender Rules) Bill 2017 was originally released for public submission on 17 July 2017.  These reforms form Schedules 1 and 2 of the Bill.

According to the Explanatory Memorandum:

“Under current law, APRA has significant powers with which to address the financial stability risks posed by the lending activities of ADIs [Authorised Deposit-taking Institutions]. For example, concerns in recent years about residential mortgage lending have led APRA to take specific prudential actions to reinforce sound residential mortgage lending practices by ADIs.

APRA currently has no such ability with respect to non-ADI lenders. This gap potentially undermines APRA’s ability to promote financial stability, as lending practices that APRA has curtailed or prohibited for ADIs may continue to be pursued by non-ADI lenders.

To address this gap, APRA will be given a new rule making power which applies to non-ADI lenders. This new power will allow APRA to make rules relating to the provision of finance by non-ADI lenders, where APRA has identified material risks of instability in Australian financial system exist as a consequence of their lending activities.”

Reducing barriers to entry for new entrants to the banking system

The draft Treasury Laws Amendment (2017 Measures No. 8) Bill 2017: amendment to section 66 of Banking Act was also released for public submission on 17 July 2017.  These reforms form Schedule 3 of the Bill as introduced.

In his second reading speech, the Treasurer said:

“Schedule 3 of the bill lifts the prohibition on the use of the term 'bank', so that all banking businesses with an ADI licence can now use the term. This will encourage competition in the sector by allowing all ADIs to enjoy the benefit of describing themselves as a bank when they offer banking services to Australian customers. This will prompt innovation in the sector by opening the door to new banking entrants who will no longer be subject to the systemic barrier to entry of not being able to call themselves a bank when offering banking services.”

New objects provision

Schedule 4 of the Bill inserts an “objects provision” into the Banking Act, which according to the Explanatory Memorandum, will:

“modernise the Banking Act and ensure consistency with similar industry Acts. While the amendments do not have any operative effect, they provide a clear signal to the reader of the objects and purposes of the Banking Act.”

Credit card reforms

On 14 August 2017, the Government released draft legislation known as Treasury Laws Amendment (2017 Measures No. 8) Bill 2017: Credit card reforms.  This legislation was the result of recommendations from an earlier discussion paper called “Credit cards: improving outcomes and enhancing competition” which was released on 6 May 2016.  The Government has committed to two phases of reforms as a result of the findings from this paper.  This first phase of reforms has been incorporated into Schedule 5 of the Bill.

The reforms in this Schedule include:

  • tightening responsible lending obligations for credit card contracts
  • prohibiting unsolicited credit limit offers in relation to credit card contracts
  • simplifying the calculation of interest charges under credit card contracts
  • reducing credit limits and terminating credit card contracts, including by online means.

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Sources:

Treasury Laws Amendment (Banking Measures No. 1) Bill 2017, Explanatory Memorandum, Second Reading Speech and draft Bills - available from TimeBase's LawOne service

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