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Lenders commit to credit card lending reforms

The corporate regulator has revealed the changes being made by lenders to reform their credit card lending practices.

The Australian Securities and Investments Commission (ASIC) has released an update to its Credit card lending in Australia review, outlining the progress of credit card reforms proposed by the regulator.

ASIC’s review, released in July 2018, found that one in six Australians were struggling with credit card debt.

ASIC’s findings included:

  • As of June 2017, there were almost 550,000 people in arrears, an additional 930,000 with persistent debt and an additional 435,000 people repeatedly repaying small amounts
  • Consumers carrying balances over time on high-interest rate cards could have saved more than $621 million in interest in 2016–17 if they had carried their balance on a card with a lower interest rate
  • 63 per cent of consumers did not cancel a card after a balance transfer and a substantial minority of consumers increased their total debt after transferring a balance

The ASIC report also made it clear that the regulator 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 engaged with the 10 largest credit providers that were part of its review (American Express, ANZ, Bendigo and Adelaide Bank, Citigroup, the Commonwealth Bank of Australia, HSBC, Latitude, Macquarie, NAB and Westpac) and sought their commitment to reform their policies.

ASIC noted that despite the reforms not being required by law, the changes have been implemented “across the board”.

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The corporate watchdog noted that since it proposed the reforms:

  • 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
  • Nine credit providers have committed to lower the amount by which consumers can exceed their credit limit

ASIC added that many credit providers are trialling measures – such as tailored communications and/or structured payment arrangements – to “help consumers with potentially problematic credit card debt or who are failing to repay balance transfers”.

The regulator also stated that other lenders are also taking a “fairer approach to balance transfers”, by allowing interest-free periods on new purchases and enhancing disclosure about cancelling old credit cards.

ASIC claimed that Macquarie, CBA and HSBC are the most progressed with implementing changes around credit card lending but said that American Express has committed to some changes, with other lenders proposing “more comprehensive measures”.

“ASIC expects that all credit card lenders will address the issues raised in our review,” ASIC commissioner Sean Hughes said.

“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 has also committed to conduct a follow-up review to see if there is an improvement in outcomes for consumers. ASIC has also claimed that it will “not hesitate to use its future enforcement powers” proposed by the federal government, if necessary, to bring about needed changes. 

In response to ASIC’s review, NAB recently informed brokers that it would be making changes to its credit card assessment criteria, which will require brokers to assume a credit card holder is repaying debt within a three-year period, regardless of contractual terms, with NAB also changing its Credit Card Affordability Rate from 3 per cent to 3.8 per cent.

[Related: ASIC seeks to bring in new lending criteria for credit cards]

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