Competition Law

Australian Competition Law and Policy Discussion

Posts Tagged ‘bank competition’

Exit fees

Posted by Julie Clarke on 24 February 2011

In yesterday’s AFR, David Crowe and John Kehoe (p 5, ‘Swan defiant on exit fee ban’) discussed the Treasury document (released pursuant to an FOI claim … the government never likes releasing these things voluntarily) warning about the ‘unintended consequences’ of placing a ban on exit fees. In particular, Treasury (amongst others) warned that such a ban would lead the banks to seek to recover actual or potential losses by increasing interest rates or other fees. Swan claims that any attempt to lift other fees to make up for lost revenue would be met with regulatory crack down – presumably based on the ‘unfair terms’ and unconscionable conduct provisions of the new Australian Consumer Law (ACL) as applied under the ASIC Act.  He has said variously:

“We’ve been absolutely clear banks won’t be able to re-badge an unfair exit fee as another type of fee and we’ve given ASIC the power to go after any bank that tries it on”   and “We’ve already put in place very clear provisions that unconscionable conduct when it comes to fees from banks will be scrutinised very closely by the regulator.”

In parliament Tuesday he said: “It is asserted by some that their abolition may mean that customers will pay more in other fees, but we have dealt with this in our consumer law and we have already put in place very clear provisions that unconscionable conduct when it comes to fees from banks will be scrutinised very closely by the regulator. It will not be tolerated if a bank seeks to move the fee from an unfair exit fee to somewhere else in the system, and that will be scrutinised very closely.” (House Hansard p 24)

But what makes a fee unconscionable?  There is no precedent to suggest that the banks lifting fees would be considered unconscionable (the law in this respect has not changed fundamentally with the Australian Consumer Law).  And contrary to Swan’s assertions, the unconscionable conduct provisions are far from ‘clear’ – particularly in respect of pricing practices.  Similarly, a charge of fee is not unfair simply because it exists or is higher than a competitive rate.

The ban may have some positive consequences – it might lead to some increased competition between banks if switching is easier.  But lets not pretend that the unintended consequences are not real – amongst other things it is likely to hit the smaller players harder and it is likely to result in some cross-subsidisation of other fees (effectively penalising those who choose not to switch banks) and let’s also not pretend that ASIC has powers that it lacks.

In the end, particularly when coupled with current proposals in relation to price signalling, it is hard not to agree with the AFR’s editorial (‘Bank bashing easier than real reform’, p 62, 23 Feb 2011): ‘Mr Swan should make up his mind and introduce sensible and robust reforms that will make a difference to competition rather than cosmetic measures that won’t have an impact, but will play to a populist agenda’.

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Price signalling bill introduced

Posted by Julie Clarke on 22 November 2010

Shadow Minister for Competition, Mr Bruce Billson, this morning presented the Competition and Consumer (Price Signalling) Amendment Bill 2010 at 10.26am. An explanatory memorandum was presented and statement made.  The Bill was read for a first time at 10.37am.

Although promoted as a response to concerns about banking competition, it is not limited to any particular sector of the economy. The explanatory memorandum states:

This Coalition Private Member’s Bill seeks to establish a new head of power under which the Australian Competition and Consumer Commission (ACCC) would be able to investigate and seek penalties for ‘price signalling’ that produces anti-competitive effects in the Australian market, to the detriment of consumers.

Price signalling is essentially defined in the bill as communication of price-related information to a competitor for purpose of encouraging the competitor to vary supply or acquisition prices in circumstances where that communication has, or is likely to have, the effect of substantially lessening competition.

The new provision would be contained in Division 2 of Part IV of the TPA and would not be subject to the new criminal regime applicable to some forms of cartel conduct.  The provision would be in the form of a new s 45A (filling the gap left by the repeal of the price fixing provision last year).  It would provide, in part:

Prohibition of price signalling

(1)    A corporation must not engage in price signalling.

(2)    For this section, a corporation engages in price signalling if:

(a)    it communicates price-related information to a competitor; and

(b)    it does so for the purpose of inducing or encouraging the competitor to vary the price at which it supplies or acquires, offers to supply or acquire, or proposes to supply or acquire, goods or services; and

(c)    the communication of that information has, or is likely to have, the effect of substantially lessening competition in the market for those goods or services, or in another market.

Establishing the purpose of a communication

(3)    Without in any way limiting the manner in which the purpose referred to in paragraph (2)(b) may be established, a corporation may be taken to have communicated price-related information to a competitor even if, after all of the evidence has been considered, the existence of that purpose is ascertainable only by inference from the conduct of the corporation, or of any other person, or from other relevant circumstances.

Several more sub-sections follow which define various terms. In particular, it captures public and private communications, including those made by way of public announcement. Importantly, however, transmissions or re-transmissions of price-related information that is already in the public domain is excluded, as are communications required by law.

The bill is more modest than had been feared by some.  Importantly, it applies only to price signalling when substantial lessening of competition flowing from that conduct can be established – this is not an easy threshold to meet – and requires a purpose of inducing a competitor to alter prices.  Although that purpose may be inferred, it must still be established in each case.  The exclusions noted above will also limit its scope.

Although it is suggested that there may be better or more effective methods of capturing anti-competitive communications between competitors (if such a law is required – and there is some argument that it is following the narrow interpretation of the word ‘understanding’ in the petrol cases – then addressing that issue directly rather than creating yet another untested provision would seem to be the preferred course of action), for a law directed toward “price signalling”, the proposed bill would seem to strike the balance appropriately between identifying that conduct likely to cause genuine anti-competitive concern and be an appropriate focus for legislative intervention, and avoiding casting the net too wide and thereby risking a series of unintended consequences (for example, a per se ban would have stifled even pro-competitive public price communications).

That said, if passed, the bill is unlikely to have an earth-shattering impact – proof of anti-competitive effect will be very difficult.

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Banking competition

Posted by Julie Clarke on 7 November 2010

In an economic note released today, Treasurer Wayne Swan stated that the Government is in the process of developing a ‘new banking competition package’, one part of which involves ‘working closely with the ACCC to carefully and methodically design new laws to prevent price signalling’. This is not really news, but he does also indicate that more will be announced shortly on this issue.

Of course the Treasury could have addressed this issue more fully some time ago if it had ever bothered to consider submission made to its own 2009 inquiry on the ‘meaning of understanding’ under the TPA, which in part was designed to address this issue.  Alternatively, it could wait until the current Senate Inquiry into Competition in the Banking Sector is complete to make a more informed contribution.  So why now?  Clearly politicians are falling all over themselves to be the first to implement new laws designed to ‘crack down’ on price-signalling (which nobody was particularly concerned about in the banking sector until very recently; a couple of years ago it was much more popular to attack petrol retailers over this issue).  Joe Hockey got the ball rolling with his ‘9 point plan‘ to attack banks, the first ‘point’ being” ‘Let’s give the ACCC power to investigate collusive price signalling (that is, oligopolistic behaviour), which is exactly what Graeme Samuel has called for’.  This was followed by his announcement on Thursday that the ‘Coalition will move to introduce a Private Members’ Bill into Parliament to give the Australian Competition and Consumer Commission (ACCC) further powers to investigate price signalling that leads to collusion and anti-competitive behaviour among the big banks’. No more substance than that, but it’s popular, so everyone now wants in on the action.

This current reactive and populist approach to reform is disappointing, if predictable.  There are limitations (arguably inappropriate ones) on the extent to which tacit collusion or signalling between competitors is captured by our existing competition laws; both within the banking sector and more broadly (the apparent desire to confine reform to the banking sector makes no logical sense, but there are clear political reasons for this approach).  But this is a notoriously difficult area to legislate and it’s important to get it right, lest unintended consequences result in more harm than good.  Right now we have various parties vying to be seen to be the ‘toughest’ on banks, a current Senate Inquiry on the issue, and a (more sensible) 2009 inquiry which has never officially been concluded, but appears dead in the water.  We dearly need a ‘Rally to Restore Sanity‘ to our approach to competition reform, which appears to have completely lost the plot in recent years and is continuing downhill …

For now, we must wait and see what they come up with and hope that any proposed law enjoys the public scrutiny it deserves before being rushed through Parliament … I am not optimistic.

In terms of price signalling generally, if you have access to the journal it’s worth having at look at a recent article on topic: R. Smith, A. Duke and D. Round, ‘Signalling, collusion and s 45 of the Trade Practices Act’ (2009) 17 Competition & Consumer Law Journal 22-42.

Update: A couple of interesting news items on topic:

Laurie Oakes, ‘Swan drops ball on Hockey Bill’ (The Sunday Times, 6 November 2010)
Oakes states in part, ‘… the [Hockey] Bill is a stunt. In an area as complex and sensitive as the financial system you can’t just throw legislation together.  It requires close and detailed work of the kind Swan has been engaging in. It requires getting advice from experts the regulators which Hockey has not done, and cannot do.’

David Uren, ‘Wayne Swan Ready to Hit Banks on Exit Fees’ (The Australian, 8 November 2010) The article quotes Brent Fisse as saying (sensibly) that ‘it was alarming that both the Coalition and Labor appeared to be rushing legislation on price signalling without public consultation’. “The chances of any of them getting satisfactory laws in the short term, with a rush and without public consultation, are extremely remote”

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