Credit card providers have vowed to improve their practices in the wake of a damning report by the Australian Securities and Investments Commission (ASIC) that found more than one in six consumers were struggling with debt.
The report also found that in June 2017, 930,000 had persistent debt and almost 550,000 people were behind with repayments.
It calculated that more than $621 million in interest could have been saved in 2016–17 if consumers had switched to a lower interest card.
It also discovered that 63 per cent of consumers did not cancel a card after a balance transfer and some actually increased their debt post transfer.
ASIC said that it expects credit providers to:
- 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
- allocate repayments for all credit cards in the more favourable way required for cards entered into after July 2012.
ASIC had talks with the 10 largest credit providers – American Express, ANZ, Bendigo and Adelaide Bank, Citigroup, CBA, HSBC, Latitude, Macquarie, NAB and Westpac – and sought their commitment to change.
The result was that:
- nine large credit providers committed to taking proactive steps to help consumers with problematic credit card debt
- four committed to fairer approaches for balance transfers, and
- nine committed to lower the amount by which consumers can exceed their credit limit.
ASIC said many credit providers were also trialling measures — such as tailored communications and/or structured payment arrangements — to help consumers struggling with credit card debt. Others were taking a fairer approach to balance transfers, such as by allowing interest-free periods on new purchases and improved disclosure details in relation to cancelling old cards.
ASIC has prescribed a three-year period for responsible credit card lending, meaning providers must not provide a card with a credit limit that the consumer could not repay within three years. This reform starts on 1 January.
“ASIC expects that all credit card lenders will address the issues raised in our review,” said ASIC commissioner Sean Hughes.
“We will be monitoring lenders over the next two years to make sure they have taken action to address our concerns, and to ensure that consumer outcomes are improving in the credit card market.”
ASIC said it would not hesitate to use its enforcement powers to bring about needed changes.
ASIC’s MoneySmart website has information for consumers about choosing and using credit cards.
Have you had issues with credit card debt? Do you welcome the improvements promised by the big lenders? Have the changes gone far enough?