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Updates on Credit Card Policies

Right now, there are over 16 million credit cards in the country. And for many of these credit card holders, sustaining debt seems an inescapable scenario for years to come.

Whether it’s from one too many vacations, or day-to-day excess spending, credit card debt is a real concern.

In fact, this is reflected in the national debt accruing interest, which is now at $33 billion.

So what age groups are affected?

Statistics tell us that the most number of cardholders belong to the 35-54 years old group. About 82% own a credit card, and a fifth of them own three or more cards.

Interestingly, there are more in the older age group who own credit cards. About 80% of individuals aged 55 and older own at least one credit card. This is much higher compared to 65% of millennial credit card holders.

The Australian government has introduced several amendments to promote responsible credit card behaviour. These include:

  • Compulsory credit reporting

Since July 1st this year, credit card issuers are required to report the level of credit card limit, borrowing history, and payment records to all cardholders. Banks are also prohibited to offer credit limit increases via email, phone, or branch invitations.

  • Credit card limit assessment

Starting January 1, 2019, card issuers must assess requests of credit limit based on your repayment ability as per ASIC guidelines.

  • Online cancellations

Credit issuers should offer online options for customers to cancel their accounts or reduce credit limits. This will also be effective starting January 2019.

  • Ban on retro-interest charges

Banks can no longer retroactively charge interests starting January 2019.

These reforms aim to protect the cardholders from further succumbing to predatory lending practices and ballooning credit card debts.

 

Responsible Credit Card Behaviour

Deborah Rognlien, our financial planning expert stated that credit card policies are the matter at hand.

According to her, Australia is lagging behind the rest of the world in the reporting requirements that banks are compelled to provide.

“It is a phase-in program; I think the banks should probably be at maybe 50-60% reporting information loading through now…this will be catching up with what is out there,” she says.

Rognlien believes that when it comes to debt responsibility, consumers and banks should work together towards a transparent partnership. She explains that some consumers have an “over-optimistic view” of what they could afford to pay. And it can be a problem if they reflect this inflated capacity in their credit application.

Banks should also exercise responsible lending. For Rognlien, “that means understanding the client’s financial position, how much it costs them to live, and whether they can afford to borrow what they may be applying to borrow.”

In addition, credit issuers should also factor existing debts that an applicant already has.

Rognlien shares that financial planners could support clients in improving their credit status. Crucial services include assessing savings capacity, identifying tax deductibles, and other steps to control debt.

If you are looking for tailored financial advice on how to improve your financial position, join our free membership today and one of our qualified consultants will assist you.