ASIC report urges reform to protect consumers from lifelong struggle.
Australia’s credit card balance is about $45 billion and one in six people are struggling with their debt, according to a report by the Australian Securities and Investments Commission (ASIC).
The corporate regulator says 18.5 per cent of credit card-holders reported being overwhelmed by their level of debt, with 550,000 people in arrears and 930,000 with persistent debt at the end of June 2017. At the same time, banks and credit card companies are reaping record levels of interest – $31.7 billion from the $45 billion debt, says ASIC.
Many credit card offers are a “debt trap”, warns ASIC, with balance transfers from one card to another a key concern.
As the banking inquiry continues to reveal the unethical and sometimes unlawful behaviour of banks and financial institutions, ASIC says tighter rules are needed around who can get a credit card and what type of card they should be offered. It proposes “responsible lending assessments” be based on whether consumers can repay the credit limit within three years.
ASIC deputy chairman Peter Kell said that few credit providers addressed consumers’ persistent levels of debt and singled out four lenders – Citi, Latitude, American Express and Macquarie – for retaining old rules for credit cards opened before June 2012. They were not breaking the law, he said, but were over-charging long-standing customers.
“There are a number of failures by lenders to act in the interests of consumers and we expect them to respond swiftly to our findings,” Mr Kell said. “We will be following up to ensure the problems we have identified are addressed.”
Citi, Macquarie and American Express intend to ditch the old repayment system, according to reports, while Latitude has told the regulator it is considering its position.
ASIC’s proposed reforms would apply to new and existing credit card contracts from 1 January 2019.
Meanwhile, The Age reports that law firm Slater and Gordon is investigating the potential for a class action with more than 100,000 customers duped into paying more than $40 million for “worthless” credit card insurance.
Have you fallen foul of credit card debt? Are you diligent about paying off the balance every month? And ensuring you have the best card for your circumstances?