Eight years after it took over regulation of consumer credit, the Australian Securities and Investments Commission last week announced it had discovered some people have problems handling credit cards. That tells you more about ASIC than credit cards.
Having finally stumbled over what everyone with a vague interest in consumer finance already knew, our dopiest regulator is proposing a raft of radical changes that could upend a large part of capitalism as we know it.
If ASIC’s “responsible lending” rules are used as precedents for responsible dealings in general and at the sharper end of business in particular, major industries would be massively blunted.
The watchpuppy – with a little pressure from a Senate inquiry and a government that is no longer pro-banks – is demanding banks take a much bigger role in deciding what is good for customers who aren’t very good at working that out for themselves.
To greatly abridge ASIC’s 82-page report, banks will be required to step in when customers keep failing to pay off their cards. Banks will have to decide if customers are doing themselves harm and prevent it.
This is massively radical. Let me quickly compare the requirement with another big industry that happens to be deeply in bed with governments of all persuasions: the pokies. Some people have trouble controlling their gambling, but there is no requirement for the local club, pub or casino to give a bugger.
Indeed, heavy gamblers are where the biggest profits are made. They are the ones likely to be given special privileges – discounted meals, free drinks, free rooms, free whatevers – to keep the mugs coming.
In the confines of a country town, where everyone has a reasonable idea of other people’s business, the local club or pub is not required to wonder how a humble clerk is funding massive gambling. It’s just too bad when the embezzlement is discovered and lives are destroyed.
Ditto the Dee Why RSL when Gary Van Duinen gambled his life away last month. Rather than do anything to resist or impede a fatal addiction, the club encouraged him to gamble.
Compare and contrast: the relative merits and potential problems of credit cards v poker machines. Then wonder why so much more will be expected of banks providing credit than pokie operators taking mugs’ money.
And – dare I say it – I’d bet there’s a substantial number of people whose credit card problems come from having a gambling problem in the first place. Pretty much by definition, the 200,000 Australians recorded as problem gamblers will be in financial trouble.
Another challenge if ASIC’s new-found love of the nanny state takes hold: there are existing responsible service of alcohol laws over the bar, but should the bottle shop bear responsibility for the alcoholic who drinks at home and then bashes his partner? Should it be made harder to buy a slab than a six-pack? A limit of one bottle of spirits a week?
What about motor bikes? If they’re honest, anyone selling someone their first bike should explain: “Odds are, you are going to put this bike down at some stage and probably more than once. If you’re lucky, you’ll be going slowly and there won’t be a truck or car coming straight at you. But you may not be lucky. You really should buy a car.”
Tobacco? If there was a requirement for the responsible sale of tobacco, there wouldn’t be any sales. End of industry.
ASIC effectively expects banks to move people with repayment problems onto cheaper credit. Consider what that principle might mean if more broadly applied, if all businesses were required to offer people the cheapest possible price for goods, rather than what the market could bear.
That’s not the way capitalism works.
None of these other examples of seller’s responsibility come under ASIC’s remit – not that it would matter much if they did, given ASIC’s record. We’re venturing into strange territory though by setting such a precedent.
For the vast majority of people, credit cards are a convenience. Yes, many people have trouble managing their debts, but the ASIC report doesn’t venture into what might happen if it is made harder for people to get credit.
The ASIC report and media release reads as if the regulator has just made a major discovery about cards. It’s actually very late to the party.
There’s a simple rule-of-thumb that I’ve been using for many years: if you’re not paying off your credit card debt in full nearly every month, you’re not in control of your finances.
People have been complaining for years about the ridiculously high interest rates on most credit cards – but they haven’t bothered to search and switch to the relatively low-rate cards on offer. Some of that is admitted in ASIC’s report.
Despite the larger population, the number of open credit card accounts has fallen back to where it was four years ago.
Similarly, the total size of outstanding credit card balances coping interest has been declining.
A Reserve Bank graph tells the story more simply: more of us are never paying interest on our cards and fewer of us do pay interest. We have been getting smarter about cards without any help from ASIC.
It is a terrible thing for people to be caught in debt traps, to fall behind their ability to pay. Sometimes emergencies occur and we have to quickly go into debt and strike trouble getting out again if our total financial situation is strained.
No, banks should not lay debt traps for people – but people also have to take responsibility for their own purchasing decisions.
ASIC demanding banks wipe everyone’s noses for them won’t solve the underlying problems of people in personal financial trouble. If it forces them into the arms of “pay day lenders”, it could make it worse.