Credit card reforms long overdue

On 15th February, a package of reforms to improve credit card lending and marketing practices passed Federal Parliament. Consumer advocacy groups Consumer Action Law Centre and CHOICE are relieved to see the important reforms finally enacted after a long consultation process.

The reforms will:

  • require affordability assessments to be based on a person’s ability to repay the full credit limit, not just the minimum repayment amount;
  • prohibit providers from making unsolicited credit limit offers in relation to credit card contracts;
  • prohibit providers from retrospectively charging interest on credit card balances;
  • simplify the calculation of interest; and
  • enable consumers to reduce credit card limits and cancel credit cards online.

“For years, banks have been forcing consumers to jump through hoops when they try to cut ties with debt. Meanwhile, banks are offering online credit card approval under 60 seconds,” says CHOICE CEO Alan Kirkland.

“Consumer groups brought these problems to the attention of banks years ago, but yet again the Federal Government has been required to step in and fix the problem.  This is another example that demonstrates that banks can’t be trusted to quickly self-regulate in customers’ interests. This is why CHOICE is calling for the Royal Commission to explore cases where the banking sector has dragged its feet and delayed reform.”.

Consumer Action has also seen the human impact of irresponsible lending and marketing by credit card providers for many years. The Centre recently told the Royal Commission into the finance sector that it is not uncommon for people to call its financial counselling service with credit card debts that exceed $100,000. The Centre has seen lenders fail to properly assess affordability, and bombard customers with unsolicited offers to increase credit card limits or balance transfer deals that are often unsuitable.

While Consumer Action is very supportive of the reforms, CEO Gerard Brody says more needs to be done to hold lenders to account for irresponsible lending.

“Today’s reforms are a welcome step in the right direction. However, we also need tougher penalties for lenders who break the law, and better compensation for people who have suffered harm because of irresponsible lending,’ said Mr Brody.

‘The harm caused by unaffordable loans is enormous, and it is hurting everyday Australians and their families. Lenders should face serious consequences when they break responsible lending laws, so that there is an incentive for lenders to comply with their legal obligations. This should be a key area of focus for the Royal Commission.’

Consumer Action is available for comment on the reforms and Royal Commission.

If you’ve been ripped off by the banks, CHOICE wants to hear about it. Contribute to their response to the Royal Commission here.