Credit Card Banking Reforms
Find out about the Credit Card Reform happening 1st July 2012.
2011 saw the Australian government making some sweeping changes to the credit card business in a bid to clean up the industry, and make it fairer for consumers.
In 2012 these changes are set to continue with a range of new reforms scheduled to take effect from July 1st. There are two sets of new rules. The first set relate to all new credit card accounts, whilst the second will be applied to all credit card accounts.
Here’s some guidance as to what the new rules are, and more importantly how they’ll affect you:
From 1st July 2012 new credit card contracts will have to
Offer a ‘Key Facts’ statement with detailed information about promotional periods and interest free days
This is a very simple and easy to understand document which outlines all the important information about your new credit card. It should tell you about interest rates, credit limits, charges and fees in a clear and concise manner so you know exactly what you’re getting yourself in for. From July, lenders will need to be totally transparent in regards to how long the promotional period lasts, what interest rate the consumer will pay during the said promotional period, and what the rate will revert to once the period is over. This will give consumers the chance to make far more informed decisions about where to open a credit card account.
| Implications for | The good | The not so good |
|---|---|---|
| Consumers | Consumers will be able to make an informed decision based on easy to understand credit card ‘key facts’. Further information about promotional periods will give consumers a greater understanding of how to maximise their interest free days. | There may be a little extra paperwork for applicants when signing up for a card. |
| Lenders | Stronger products will be more attractive to consumers. | Changing the way information is presented to the consumer will require a system upgrade to redesign business to customer communications. |
Ban over-limit fees & inform you when you’re over-limit
Lenders will no longer be able to charge you a fee for going above your agreed credit limit, unless you give them explicit permission to do so when you sign up for your account. They’ll also have to be much clearer about any administration fees or charges customers may be liable for.
At the moment your lender is under no obligation to let you know when you’ve overspent. This can lead to accidental over use resulting in spiralling debts. From July, the minute you go over your agreed credit limit your lender will be obliged to contact you.
| Implications for | The good | The not so good |
|---|---|---|
| Consumers | Cardholders will not be charged for spending over their approved credit limit. | In case of emergency or unexpected expenses, consumers may have limited access to credit if they are near their approved credit limit. |
| Lenders | Cardholders that have greater control over their finances may feel empowered to try new products. | There will be a reduction in the revenue lenders are earning from over-limit fees. |
Allow you to pay the most expensive debt first
Up until now credit card providers would apply any payments you make to the parts of your debt being charged at the lowest rate of interest.
For example, any special promotional balance transfer debt would have been paid first; meaning debt you’d accrued at high rates of interest would have longer to make them a profit. This reform is much fairer and gives consumers a far better chance to reduce their debts faster.
| Implications for | The good | The not so good |
|---|---|---|
| Consumers | Consumers with a balance charged at different rates of interest will see a reduction in their repayments and the time it takes them to pay off their card. | |
| Lenders | Consumers may change their attitudes towards certain lenders with their implementation of a ‘fairer banking system’. | Lenders will need to update their systems for allocating repayments to credit cards. The loss in revenue may also see a change in offers for certain products. |
From 1st July 2012 all credit card contracts will have to
Ban unsolicited credit limit increase offers
Unless you give your lender permission to send out credit limit increase offers, these communications from your lender will be banned. This will help those who are easily led into temptation steer clear of trouble. You’ll be in total control of your credit limit and will even be able to ask for a limit reduction if you think it helps you stay out of debt.
| Implications for | The good | The not so good |
|---|---|---|
| Consumers | Consumers will no longer receive offers for credit limit increases that they do not want. | People who do want to be contacted about credit limit increase offers will have to contact their lender and ‘opt-in’ to receiving these offers. |
| Lenders | There will be a saving on card providers direct marketing costs and a reduction in bad debts due to consumers taking on credit that they don’t need. | Lenders will have to find other means to ‘sell credit’ to consumers. |
Provide you with detailed statements
At the moment most credit card statements give limited information, usually just your outstanding balance, the amount you’ve spent in that billing period, and your next minimum payment.
Under the new rules card companies will have to offer detailed statements, giving you information such as the amount of interest being charged, and how many years it would take you to repay your balance if you only stick to minimum monthly payments.
This will leave borrowers in a better position to fully understand the extent of their debt.
| Implications for | The good | The not so good |
|---|---|---|
| Consumers | Cardholders will be fully aware of the implications of making the minimum repayment on their credit card(s) each month. | |
| Lenders | Cardholders that have an understanding of the nature of their debt and an improved sense of financial literacy are less likely to default on credit card repayments. | Lenders will receive less revenue from credit card interest charges if customers change their repayment frequency. |
What next?
All of these changes will come into affect during the middle of the year, and whilst many lenders are complaining about being victimised by the Government’s stricter stance on lending, surely they only have themselves to blame.
In recent years more and more people have been enticed into debt, and although it’s the consumer that goes into a store and pulls out their card, the lenders have to take some of the responsibility themselves.
Tactics such as increasing customers credit limits and offering sudden low rates on purchases do nothing but promote reckless spending, and it’s been the tax paying nation who have had to pick up the tab.
Will these new reforms do much to stem the rising credit card debt crisis?
Unfortunately, there will always be those who borrow more than they can afford to pay back, and there will always be those who spend before they think. What these new credit card regulations may do is protect those who do really want to stay out of debt, from the tempting apple of credit.
Was this content helpful to you? No Yes
Ask a Question
6 Responses to Credit Card Banking Reforms
Credit card offers:
Learn about our information service| HSBC Credit Card | Bankwest Zero Platinum Credit Card | Virgin Flyer Credit Card | ANZ Low Rate |
 |
 |
 |
 |
0% p.a. for 6 months on balance transfers & no annual fee |
0% p.a. for 9 months on balance transfers & platinum benefits |
0% p.a. for 8 months |
0% p.a. for 9 months on balance transfers & low rate |
|
|
|
|
Subscribe to our newsletter and get "The Ultimate Guide to Balance Transfers"
If You Like This Post...
Get all the latest deals, guides and loopholes in Finder's free bi-monthly email. Don't miss out - join the thousands who get it emailed!
I have applied for a balance transfer but the card being transferred is currently zero but I wish to transfer $8K across. I can easily spend this on overseas airfares and bookings. Can I do this before the balance is taken across or will the new bank ask the previous bank the balance before I have a chance to do this. I don’t want to buy these tickets before I know I have been approved for the transfer. Does this make sense? Regards Donna
Hi Donna. This is what I know about the balance transfer process. Once you apply for a new card, the new card’s provider will send a request to your old lender to get the balance transfer process started. Your old lender will need to process that request and release the debt to your new card provider. This process can take up to two weeks. Be sure to check the terms and conditions of the product you’re applying for, some cards do have a clause saying to be eligible for the balance transfer rate of interest, you will need to apply for the balance transfer at the time of card application. If you require further information about this topic. Please contact your credit provider directly. Alternatively, we spoke to Julian Potter, head of cards at Citibank. He speaks about balance transfers to Citibank credit cards, but some of the information is applicable to most credit cards – it should give you an idea about the process.
Jacob.
Can a bank charge the cash advanced interest rate on a total balance of a credit card if part of the credit card balance was cash advance and part credit purchases?
Hi Belinda. No, they can’t. If this is the case. Please take it up with your provider immediately.
My partner & I have a credit card which allowed us to overdraw our limit by more than $600. They have continually been calling my partner – even after i called them and arranged to pay off and catch this amount up.
On top of this they are charging us $40 per month over the limit fee – which I believed was illegal. I did tell them that I will fix the rest of the debt up – but will not be paying any over the limit fee’s they have, and are continuing to charge us
HI Sharon. Thanks for your question. When did you open the account? The over-limit fee reforms apply to accounts opened after the 1st of July 2012. Jacob.