Between 2012 and 2017, the Australian Securities and Investments Commission (ASIC) undertook a review of credit card lending in Australia. ASIC’s findings demonstrated significant poor consumer outcomes in relation to credit card debt. As a result, ASIC has taken action and has called upon credit card providers to improve their lending practices.
ASIC’s review found that credit card debt is a problem for more than 1 in 6 consumers, with difficulties often persisting over a number of years. Problems range across various aspects in the provision of credit. Too many consumers have credit cards that are not suited to their behaviours or needs. Few credit providers are taking proactive steps to address persistent debt, low repayments or products that are unsuitable for consumers.
Balance transfers are another notable problem. ASIC found that consumers with a higher level of credit card debt across all their cards were more likely to transfer balances. While a balance transfer may help reduce credit card debt, most consumers do not cancel cards after transferring balances and continue to use them, resulting in further interest charges.
ASIC will be monitoring industry to ensure that credit providers:
- take proactive steps to address problematic credit card debt and products that do not suit consumers;
- minimise the extra credit provided to consumers who regularly exceed their credit limit;
- take proactive steps to help consumers repay their balance transfers;
- encourage consumers to review their current credit cards when they transfer a balance;
- ensure balance transfer offers are designed to take into account additional spending;
- develop tools to help consumers choose credit cards that reflect their needs.
ASIC will be engaging with credit card providers about how they plan to address the findings and improve their credit card products and processes. ASIC will be following up to ensure the identified problems are addressed.
In September 2018, ASIC will publish information about credit providers that:
- have committed to develop and introduce measures to address problematic credit card debt and products that do not suit consumers;
- are taking a fair approach to additional purchases on balance transfers; and
- are not providing notice to consumers before balance transfer promotional periods end.
ASIC will conduct a follow-up review in two years to track progress in the industry.
ASIC consults on credit card responsible lending assessments
From 1 January 2019, credit licensees providing credit or credit assistance in relation to both new and existing credit card contracts are required to comply with a prescribed period for assessing whether a credit card contract or credit limit increase is unsuitable.
ASIC proposes that the prescribed period for responsible lending assessments for credit cards be based on whether the consumer can afford to repay the credit limit within three years. The three year threshold aims to ensure that consumers can afford to repay their credit card debts within a reasonable period, while retaining the flexibility to make low minimum repayments on credit cards.
ASIC is seeking consultation from credit providers on the three year period proposal. Submissions will close on 31 July 2018, after which ASIC will make a formal decision.
Unsolicited credit limit offers
From 1 July 2018, credit providers must not make unsolicited credit limit increase invitations. This includes communications that offer to increase the credit limit, invite the consumer to apply for a credit limit increase or encourage the consumer to consider applying for an increase.
Credit limit reduction and cancellation
For credit card contracts entered into after 1 January 2019, credit providers must give consumers the right to ask to reduce their credit limit or cancel the contract. Consumers must be able to exercise these rights online.
If a consumer makes a request, the credit provider must take reasonable steps to ensure the request is dealt with as soon as possible.