Following consultation, ob体育 has set a three-year period to be used by banks and credit providers when assessing a new credit card contract or credit limit increase for consumers. 聽
ob体育 has prescribed a three-year period to strike an appropriate balance between:
- preventing consumers from being in unsuitable credit card contracts, and
- ensuring that consumers continue to have reasonable access to credit through credit card contracts.
In July 2018 ob体育 released Consultation Paper 303 Credit cards: Responsible lending assessments (CP 303), which outlined the proposal to prescribe a period of three years for responsible lending assessments. The consultation paper suggested this period would apply to all classes of credit card contracts.
Today ob体育 published a feedback report (REP 590)聽which outlines the submissions received and ob体育鈥檚 responses. has also been created.
In REP 590 ob体育 provides further guidance on the assumptions that should be made when assessing whether a consumer can repay the credit limit within three years. This includes guidance on:
- fees on credit card accounts
- interest rates charged on credit card contracts held with other credit providers,聽and
- the effect of the reform on responsible lending assessments for other credit products.
The new legal requirement commences on 1 January 2019. Credit providers are expected to have systems in place to ensure that that they can meet the new obligations.
The revised obligations will apply to licensees that provide credit assistance and licensees that are credit providers for both new credit card contracts and credit limit increases under existing credit card contracts. 聽ob体育 will monitor the prescribed period and our guidance to ensure that it is achieving the goals of the reform.
Background
In March 2018 the Government implemented reforms in response to the relating to credit card interest rates. As part of the reforms, responsible lending obligations were amended to require that a credit card contract or credit limit increase must be assessed as unsuitable if it is likely that the consumer would be unable to repay the credit limit within a period prescribed by ob体育.
The purpose of this reform is to make sure that consumers can afford to repay their credit card debts within a reasonable period. Consumers will still retain the flexibility to make low minimum repayments on credit cards.
In July 2018 ob体育 released Report 580 Credit card lending in Australia (REP 580), which contained our findings that more than one in six consumers are struggling with credit card debt, and that lenders could do more to take proactive steps to address persistent debt, low repayments or poorly suited products. We also found that in the 12 months to June 2017, $621 million could have been saved if consumers who regularly incur interest charges had used a lower rate card.
In REP 580 ob体育 flagged that it would publicly report on the credit providers who do and don鈥檛 respond to the findings and this will occur later in 2018.
ob体育 received 15 submissions in response to CP 303. ob体育 thanks the people, businesses and associations that took the time to provide comments on our proposal.