Australians have around $52 billion in debt outstanding on credit cards and the federal government is going after this lucrative part of the banking sector with four tough new measures in a crackdown on card debt.
Treasurer Scott Morrison has announced plans to change the way eligibility for a credit card is assessed, shifting it from the ability to pay the minimum repayment to being able “to repay the credit limit within a reasonable period”.
Before the end of the year, Morrison has pledged to pass legislation banning unsolicited offers of credit limit increases. The ban follows on from changes in 2011 which stopped card issuers offering written offers to increase credit limits unless the customer had already given consent. Banks switched to verbal offers as a way around the laws.
The remaining changes will see interest calculations simplified and force providers to offer online options to cancel cards or to reduce credit limits.
Morrison argues that under the current arrangements, people enticed to a card by an interest-free period have no way of calculating the cost and interest charges if they do not pay off the balance in full when the offer period ends.
Such are the technicalities and complications, most consumers have no idea how interest charges apply, and therefore incur heavy interest charges after the interest-free period when their balance is not paid in full.
Morrison said the government was targeting “unfair and predatory practices” by credit card providers.
“These measures will deliver the first phase of reforms outlined in the Government’s response to the Senate Inquiry into the credit card market,” he said.
“The reforms will substantially reduce the incidence of consumers being granted excessive credit limits and building up unsustainable debts across multiple credit cards.
“Collectively, these measures will help prevent the debt cycle that many Australians find themselves in.”
Of the $52 billion owed on 16.7 million credit cards in Australia, which often attracts interest charges of around 20%, the average outstanding balance is $4,730.