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2010
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
SENATE
Banking Amendment (Delivering Essential Financial Services for the Community) Bill
2010
EXPLANATORY MEMORANDUM
(Circulated by authority of Senator B Brown)
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Banking Amendment (Delivering Essential Financial Services for the Community) Bill
2010
Outline
The Banking Amendment (Delivering Essential Financial Services for the Community) Bill
2010 (the Bill) amends the Banking Act 1959 in four ways. The Bill:
· requires banks to offer basic transaction accounts that are free from account keeping fees
and penalty fees for the actions of third parties, and that limit other fees to a level
sufficient to recover the cost to the bank of the penalised conduct;
· provides that transactions at a bank's own-branded ATMs are to be free of charge, and
caps charges for the use of a bank's ATMs by customers of another authorised deposit-
taking institution (ADI) at the cost of service provision;
· requires ADIs to offer a mortgage product (a 'fixed interest gap mortgage') with an
interest rate fixed at a negotiated margin above the institution's cost of funds; and
· caps mortgage exit fees at a level sufficient only to recover the cost to the lender of the
early termination, and requires that exit fees are mentioned in advertising and included in
mortgage contracts in a uniform way to ensure customers are aware of them when
deciding whether to sign the contract.
NOTES ON CLAUSES
Clause 1 - Short Title
This is a formal provision specifying the short title.
Clause 2 - Commencement
The Bill's provisions are to commence the day after the Bill receives Royal Assent
Clause 3 - Schedules
This clause provides that an Act that is specified in a Schedule is amended or repealed as set
out in that Schedule, and any other item in a Schedule operates according to its terms.
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Schedule 1 - Amendments to the Banking Act 1959
Part 1 - Conditions on banks' authorities
Item 1 - Basic accounts and ATM fees
Item 1 inserts a new section 9AA into the Banking Act.
Subsection 9AA(1) provides that the Australian Prudential Regulation Authority (APRA)
must vary banks' section 9 authorities to give effect to this section within 30 days of the Bill
commencing operation.
Subsection 9AA(2) introduces the requirement for banks to offer basic accounts (9AA(2)(a))
and an obligation upon banks to make their customers and prospective customers aware of
these accounts.
Subsections 9AA(3) and (4) describe basic accounts. Paragraphs 9AA(3)(a)-(d) detail the
mandatory minimum features of basic accounts, while paragraph 9AA(3)(e) prohibits
ongoing service fees and penalty fees for the actions of third parties. Subsection 9AA(4)
provides that the relevant actions of third parties are to be detailed in regulations. It is
envisaged that they will include transgressions over which the account holder has no control,
such as inward cheque dishonour.
Some fees are still permitted under subsections 9AA(5) and (8), as discussed below, but
paragraph 9AA(3)(f) provides that any attempted transaction that will result in the imposition
of these fees must first trigger a real time warning to the customer and the opportunity for the
customer to rescind the transaction. This is akin to the automatic warnings that are presently
given to customers before they are charged for the use of an ATM.
Subsections 9AA(5) and (6) relate to penalty fees for breach of contract for basic account
holders. Such fees may not be levied unless they have been approved by APRA (9AA(5)),
and APRA may only approve fees that have not been imposed for the actions and
transgressions of third parties and are not greater than the reasonable costs incurred by the
bank as a result of the breach (9AA(6)).
Subsections 9AA(7)-(9) introduce restrictions on the charges banks may levy for the use of
their ATMs, or for the use of other ATMs by their customers. These restrictions apply to all
banking customers, not only those with basic accounts. Under these rules, a bank may not
charge its customers for the use of the bank's own ATMs (9AA(7)). Banks are also not
permitted to charge their customers for the use of any other ATM (9AA(8)(a)), or to charge
non-customers for the use of their own ATMs (9AA(8)(b), unless the fee has been approved
by APRA. Subsection 9AA(9) provides that APRA may only approve such fees if it is
satisfied that they do not exceed the banks' reasonable costs of providing the ATM service.
Subsection 9AA(10) provides for regulations to facilitate APRA's collection of information
from banks to enable it to calculate their reasonable costs incurred as a result of breaches of
contract by basic account holders and the provision of ATM services to non-customers.
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APRA will require this information to discharge its duties under paragraph 9AA(6)(b) and
subsection 9AA(9).
Subsection 9AA(11) provides definitions of terms used in section 9AA.
Part 2 - Fixed interest gap mortgages
Item 2
Item 2 inserts a new section 9AB into the Banking Act.
Subsection 9AB(1) provides that APRA must vary banks' section 9 authorities to give effect
to this section within 30 days of the Bill commencing operation.
Subsection 9AB(2) introduces the requirement for ADIs to offer 'fixed interest gap
mortgages' to their customers and prospective customers (9AB(2)(a)), including when selling
mortgage products through a third party. Paragraph 9AB(2)(b) requires ADIs to develop a
formula for calculating their cost of funds, submit it to APRA for approval (9AB(3)), which
APRA may only grant if it is satisfied that the formula will yield a result that does not exceed
the ADI's cost of funds (9AB(4)). Subsection 9AB(7) provides for regulations to be made
permitting the collection of cost information and other data from ADIs so APRA is able to
determine whether an ADI's formula for calculating its cost of funds is adequate.
As with variable rate mortgages, fixed interest gap mortgages will need to be recalculated
periodically so that customers benefit from reductions in the ADI's cost of funds and the ADI
is able to maintain its margins if its costs increase. Subsection 9AB(5) provides for APRA to
issue guidelines that will identify the triggers for recalculation.
Subsection 9AB(6) defines various terms used in section 9AB.
Part 3 - Exit fees on mortgages
Item 3
Item 3 inserts a new section 9AC into the Banking Act.
Subsection 9AC(1) provides that APRA must vary banks' section 9 authorities to give effect
to this section within 30 days of the Bill commencing operation.
Subsection 9AC(2) introduces a requirement for ADIs that offer variable rate mortgages and
fixed interest gap mortgages (including where these mortgages are sold by third parties) to
submit a formula to APRA linking any early termination fees for these mortgages to the
actual and reasonable costs sustained by the ADI as a result of the early termination
(9AC(2)(a)). Subsection 9AC(6) provides for regulations to be made permitting the
collection of cost information and other data from ADIs so APRA is able to determine
whether an ADI's formula for calculating the cost of an early termination is adequate. ADIs
are also required to include the early termination fee under the uniform heading 'Early
Repayment Charges' in the mortgage contract (9AC(2)(b), and notify customers of the
existence of the charge when advertising these mortgages (9AC(2)(c)).
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Subsection 9AC(3) imposes the same obligations upon ADIs with respect to fixed rate
mortgages, with the sole exception that paragraph 9AC(3)(b) requires that the early
termination fee is to be expressed in the mortgage contract as a plain English explanation of
how the charge will be calculated rather than a figure. This is to accommodate the fact that
ADIs are unable to anticipate what an early termination of a fixed rate mortgage will cost
them in advance.
Subsection 9AC(4) provides for APRA to issue guidelines regarding an ADI's ability to vary
its formula for calculating the early termination fee.
Subsection 9AC(5) defines 'early termination fee' for the purpose of this section.
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