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During 2015, the Senate Economic References Committee carried out a survey and issued a rapport on a number of matters affecting the credit card industry in Australia, covering the implementation of good credit legislation and the Senate survey. In response to the Senate's investigation, the government carried out a comprehensive ASIC credit card audit and introduced the Treasury Laws Amendment (Banking Measures No. 1) Act 2018 (Cth).
ASIC published Report 580 (the Report) on 4 July 2018, which analyzes the results of ASIC's credit card issuance audit in Australia between 2012 and 2017. This report looks at the results of consumers' indebtedness over the reporting horizon, paying particular consideration to those features of consumers that ASIC has identified as 'problematic'.
This report's primary emphasis is on the large number of credit card users with these problem payment terms; certain appealing credit card terms or promotional activities that result in higher consumer debts over a period of years ( e.g. account balances ); and the consumer challenge in choosing an appropriate credit card.
With 300,000 open credit card arrears in ASIC's reporting timeframe alone, credit card activity totaled $45 billion in June 2017, credit card activity has become an important part of the Australia payment system. Three million credit card holders, almost a fifth, were classified by ASIC as "potentially problematic".
Among these problem features were circumstances where the customer had repeatedly made low refunds and interest payments over a twelvemonth horizon; the credit card's credit card outstanding averaged 90% of the credit line and interest had been debited; the credit card supplier had debited the credit card details or notified ASIC of the bank details.
There are two areas of particular concerns highlighted by Asia Pacific - that young individuals and multi-card users tend to have problem debts; and that nearly 900,000 individuals who had problem debts in 2013 still had problem indebtedness in 2017. However, the high level of consumer activity, which had repeatedly led to low repayment rates or sustained debts during the reporting periods, indicated to Assic that there was room for further regulation to support these customers.
This report found that many credit institutions were in fact supporting higher interest rate card schemes that provided added "lifestyle" advantages such as rewards programmes and longer interest-free times and encouraged customers to choose card that did not fit their behaviour. Consumer whose card did not match their behaviour also indicated more difficult indebtedness indices.
This report investigates the use of credit card balances carried forward, which is a function that allows a credit card client to carry some or all of the debit from one card to another. For a certain amount of money, the amount owed is subject to interest at a lower interest level, which means that any amount not yet paid is subject to a higher interest level.
ASIC compared the overall net amount of all debit and credit card transactions at the beginning of the remittance with the overall net amount just after the eligibility deadline to identify a "debt trap". Within this debit case, those households who were transferring more than one account receivable rather increased their overall credit card debit during the advertising horizon, but relatively better results were obtained in later transactions.
The ASIC also found a high rate of consumer failure to reverse credit card transactions after the transfer of funds, which increases the likelihood that they will raise their overall indebtedness during the advertising time. Half of all lenders who offer interest subsidies for credit transfer have neglected to proactively take measures to remember clients who had not remitted the amount to pay that the subsidy is over.
This report describes the ASIC's expectation of credit card issuers in reaction to the particular questions of customer safety raised during the reporting periods and describes the follow-up measures that the organisation plans to take. Hasic strongly urges lenders to proactively address the challenges that often arise for customers with problem indebtedness features by taking action:
Be proactive in looking for indications of problem credit card debts; minimize additional credit for regular credit exceeding their credit limits; help customers pay back their credit remittances, also by notifying them 30 working days before the end of the credit eligibility deadline; encouraging customers to check the credit card (s) they own when transferring funds and cancel any credit card they no longer need;
To exempt credit with a 0% subsidy from the amount that must be reimbursed for an interest-free time; to make all credit card transactions, even those opened before the introduction of the credit transfer obligation, subject to the National Credit Law's obligation to allocate. The ASIC aims to enhance good credit governance practice by undertaking recent reform measures that have encouraged lenders to use stricter credit card and credit limits assessment benchmarks; talking to business about how to deal with ASIC results; posting information on complaints and non-compliant lenders on the ASIC MoneySmart website; and carrying out a follow-up assessment in 2020.
As a result of this change in the law, credit card issuers are subject to more stringent regulations. From 1 January 2019, affordable credit ratings will be determined on the basis of a consumer's capacity to pay back the credit line within three years. Unwanted credit offers: As of July 1, 2018, credit card issuers will not be allowed to make unrequested credit card offer requests to credit card owners to raise the limits of credit card contracts.
Interest calculation changes: From 1 January 2019, lenders will not be able to charge interest retroactively. Reducing and terminating credit lines: For all credit card agreements concluded after 1 January 2019, lenders must make sure that customers are able to withdraw or lower credit lines on-line.