The Government has taken action on its commitment to improve consumer outcomes under credit card contracts, releasing draft legislation that includes changes to responsible lending rules, unsolicited offers, the way interest charges are calculated and limit reductions and terminations.
In a statement accompanying the draft, Treasurer Scott Morrison said the purpose of the amendments was to reduce the likelihood of consumers being granted excessive credit limits, to align the way interest is charged with consumers’ reasonable expectations and to make it easier for consumers to terminate a credit card or reduce a credit limit.
Treasury Laws Amendment (2017 Measures No.8) Bill 2017: Credit Cards includes the following measures.
Responsible lending. Responsible lending obligations have been re-written, so that a consumer’s unsuitability for a credit card contract or credit limit increase will be assessed on whether the consumer could repay an amount equivalent to the credit limit of the contract within a period determined by the Australian Securities and Investments Commission.
This change will apply to new and existing credit card contracts from January 1, 2019. Until now, standard practice has been to assess whether the consumer can afford to pay the minimum monthly repayment on the credit limit amount.
The Government’s view is that this may result in some consumers incurring credit card debt that cannot be paid down in a timely manner and without incurring large cumulative interest charges.
Unsolicited offers. The current ban on unsolicited credit limit offers has been broadened to cover all forms of communication. These changes will apply to new and existing credit card contracts from January 1, 2018. Some credit card providers had circumvented the ban on unsolicited offers by phoning customers or using websites.
The informed consent exemption has been removed; previously, card issuers could give consumers credit limit increase invitations where the consumer had expressly consented for the issuer to do so.
Interest charges. Card issuers will not be allowed to impose interest charges retrospectively to a card balance that has had the benefit of an interest-free period. This change applies to new and existing credit card contracts from January 1, 2019.
Under current practice, where a card balance is not paid in full by the due date, interest is charged on every purchase made on the card from the date of the purchase to the date on which the repayments are made. This interest is charged in the subsequent statement period, not only for the second statement period but also the previous one, back to the date on which the purchase was made.
This retrospective charge is applied to the total balance and not just the unpaid balance.
Under the new rules, a credit card issuer is prohibited from imposing a liability retrospectively. A card issuer will only be able to apply a rate of interest to any unpaid balance on days that occur after the unpaid balance’s due date.
Limit reductions and terminations. Credit card contracts entered into after January 1, 2019 will have to include a provision that allows consumers to request a credit limit reduction or card termination by online means.
Following such a request the issuer must not make a suggestion that is contrary to the consumer’s request and must take reasonable steps to ensure that the request is acted on. The Government’s view is that the process of cancelling a card or reducing credit limits can be “unnecessarily onerous”.