Credit card providers will be forced to scrap unfair and predatory practices within the year under reforms to be introduced by the Turnbull Government.
It is vital that we protect vulnerable Australians from predatory behaviour which seeks to make a quick buck from people’s misfortune, and compound their financial hardship.
Before the end of this calendar year, the Turnbull Government will:
- require that affordability assessments be based on a consumer’s ability to repay the credit limit within a reasonable period;
- ban unsolicited offers of credit limit increases;
- simplify how interest is calculated; and
- require online options to cancel cards or to reduce credit limits.
These measures will deliver the first phase of reforms outlined in the Government’s response to the Senate Inquiry into the credit card market.
The reforms will substantially reduce the incidence of consumers being granted excessive credit limits and building up unsustainable debts across multiple credit cards. It will put an end to the overly complex and unfair way in which interest is calculated on credit cards.
Collectively, these measures will help prevent the debt cycle that many Australians find themselves in. Currently, there is around $52 billion of debt on the 16.7 million credit cards issued in Australia, with the average balance sitting at $4,730.
The debt-servicing burden falls more heavily on households with low levels of income, with households in the lowest income category having debt equal to four per cent of their annual disposable income, compared to 2 per cent for those in the highest income category.
These measures will help protect vulnerable Australians, and ensure financial companies do the right thing by their customers.