Senate inquiry calls for a fairer credit card system

A Senate inquiry has called on the Government to help those struggling with debt.

Senate inquiry calls for a fairer credit card system

Australians caught in the ‘credit card trap’ could soon experience some relief, as a Senate committee calls on the Government to focus on responsible lending and end credit card price gouging.

Prompted by the increasing gap between official interest rates and the interest charged on credit cards, a Senate committee, which includes both Labor and Coalition senators, has suggested that lenders should make credit card customers repay minimum amounts of interest and principle, as well as plainly advertise ongoing fees and interest as part of monthly billing systems.

Other recommendations include:

  • cardholders should have the option of closing accounts online, instead of having to deal with bank staff trying to dissuade them from doing so
  • providers should better assess a potential cardholder's creditworthiness to pay off the balance of the debt, not just the minimum repayment
  • consumers should be better informed about their credit card use, as well as the associated costs
  • The Government should consider a minimum monthly repayment level for credit cards
  • credit card providers should contact customers when balance transfer periods are about to expire to discuss costs and alternative affordable products – before the low rate ends and a much higher rate kicks in.

Consumers with outstanding credit card balances usually face interest rates of up to 23 per cent. In order to reduce these rates, the committee recommends encouraging increased competition amongst providers by reducing credit card interest repayments to around 2.5 per cent of the total outstanding.

It is thought that if customers paid more attention to the interest and continuing charges of a credit card, many of them may decide to switch to lower-cost accounts, thus increasing competition amongst providers.

“We're looking at responsible lending and trying to create more competition," said Labor Senator Sam Dastyari.

And although there are already many cards on the market from which to choose, interest rates are not currently the focus of competition because consumers mostly feel they can pay off their debt in time.

But by the end of June this year, Australians had $51.5 billion in credit card debt – $33.1 billion of which was accruing interest.

The report calls for improvements to lending assessments, and recommends that providers should make more of an effort to contact customers who have only been paying the minimum repayment for 12 months to discuss costs and affordability.

"The committee believes card providers should be explicitly required to evaluate credit based on a consumer's ability to repay their credit limit over a reasonable period, rather than on their ability to meet minimum repayments," the report said.

The committee suggests that the Government could also do more to promote alternatives to credit cards, such as peer-to-peer loans, which are usually available at much lower interest rates.

According to Consumer Action Law Centre Chief Executive Gerard Brody, financial counselling services receive more phone calls about credit card debt in the lead-up to Christmas than at any other time of the year.

Read more at The Sydney Morning Herald
Read the CHOICE recommendations

What do you think of these suggestions? Do you think the current credit card system is fair? Or do you think the banks could do more to make the system fairer?

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    COMMENTS

    To make a comment, please register or login
    roy
    17th Dec 2015
    11:03am
    I personally would never have a credit card that charges a yearly fee when there are so many free cards out there. Also have I beaten mick to be the first to post on here?
    Polly Esther
    17th Dec 2015
    12:31pm
    mick??????
    Anonymous
    17th Dec 2015
    3:08pm
    I had one with an annual fee but I was happy because it carried huge benefits - free travel insurance, purchase insurance, extended warranty on purchases, plus a great rewards program. Rewards always exceeded the fee. And after a couple of years, they offered me an upgrade to a fee-free card with even more benefits. Nice!
    KSS
    17th Dec 2015
    1:41pm
    All very well making it easier to move to a new card but that doesn't address the real issue of spending more than you have. If you can't afford to pay off your card debt every month in full, you simply can't afford to have a card at all. If you do pay it off every month it doesn't matter how high or low the fees are, you won't be paying them.

    This is another occasion where personal responsibility is being outsourced elsewhere, in this case the credit card companies.
    leonYLC
    17th Dec 2015
    2:19pm
    Couldn't agree more KSS
    Anonymous
    17th Dec 2015
    3:10pm
    You are right, KSS. And watch the costs go up when the banks have to change their ways to cater to the irresponsible. Costs have risen in every area because of calls to cater to people who can't organize themselves and manage their affairs properly.
    Radish
    17th Dec 2015
    4:01pm
    Before children leave school there should be class given on how to deal with credit and how to budget.

    Kids are thrown into the deep end and have not a clue regarding financial matters when they enter the workforce.

    Learn to live within their means...I did when I started work. No money no purchase...simple.
    Retired Knowall
    17th Dec 2015
    4:48pm
    Who is going to teach the teachers, the clueless bunch that never left school?
    LiveItUp
    17th Dec 2015
    5:17pm
    No kids are not thrown in the deep end they just ignore everything because they think they know everything.
    Anonymous
    17th Dec 2015
    5:50pm
    Let me preface this comment by saying I am not a teacher, never was a teacher nor are there any family members who are teachers.

    Why is it that any time there is a problem with young people that it is suggested that teachers have a role in fixing things. Car accident where teens are killed; teachers should teach how to drive. Teen drowning; teachers should teach children how to swim. Teens die from drugs; teachers should be running a drug and alcohol awareness program. Teens have bad manners; teachers should spend time teaching students manners. In the meantime there is a great outcry because students are having problems with reading, writing and maths. Why don't we ask parents to take some responsibility and let teachers do what they are trained to do, teach regular school subjects.
    roy
    17th Dec 2015
    7:00pm
    Well said Old Man, what happened to parent's responsibility?
    LiveItUp
    17th Dec 2015
    8:00pm
    Just don't you hate those parents who react after the horse has bolted. Kids killed in car accident so then need to fix their guilt by making it harder for other kids to drive with more rules and regulations.
    roy
    17th Dec 2015
    8:39pm
    Youth is wasted on the young.
    LiveItUp
    17th Dec 2015
    4:58pm
    Ok I'm a credit card junkie who pays the balance outstanding every month. I don't pay any fees gets lots of rewards etc.

    However I did have a problem with credit cards. Paywave. So I asked my bank for a credit card without it. The answer was NO. So I then asked the bank to reduced the $100 Paywave limit from $100 per transaction to $1 per transaction like some banks do in New Zealand. Answer was again NO. So after refusing to use my credit card for a few weeks and hassles with getting cash I decided there must be another way. So I did some research on how to disable Paywave myself. My credit cards now have no Paywave. Everything else works but Paywave.

    So now if my card is stolen it will fail on the first Paywave transaction and the thieves will dump it and look for someone else to steal a credit card from.

    Yes I've heard the banks argument that I won't be responsible for transaction that I don't make etc but who ants or needs this hassle in their lives.
    Sundays
    17th Dec 2015
    5:21pm
    You will still have to cancel your card, and have the hassle of waiting for a replacement. I like payWave because no one can see me input my PIN and it's more convenient, but to each his own.
    LiveItUp
    17th Dec 2015
    7:56pm
    Paywave doesn't require a pin so anyone can use you credit card for transaction up to $100. Your card get stolen and the thief then goes from shop to shop spending $100 in each so it doesn't take long for your credit card to have a big amount owing or maxed out.

    Visa and MasterCard gradually rolled out Paywave with a lot of people still not aware of how it works and how easy it is for someone else to use your credit card. So much for all the hype about pin security and how much more secure it was than a signature. They just replaced the signature with something much more sinister.

    My cards still work with a pin but they have no Paywave. I have no need to cancel my card as it now works how I want it to work not how Visa and MasterCard would like it to work.

    No Paywave also means that my credit card cannot be scanned by scanning devices while it is still in my wallet or pocket.
    Anonymous
    18th Dec 2015
    1:19am
    Bonney can you please advise me on how to do this how to disable "payWave
    Thanks
    Enneagram 8
    Sundays
    18th Dec 2015
    3:30pm
    You do realise that if someone steals your card they can quickly max it out by purchasing goods online. No pin required
    Libby
    17th Dec 2015
    9:34pm
    I have a credit union card and I don't have to pay the annual fee. My limit is $500! Never exceeded the amount, easy to pay off outstanding balance. I only use it for internet broadband. We never had them in the 70s until I went to South Africa, they already had them and the banks opened on Saturdays. I realised then how far behind this country was or still is!

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