Financial Regulator Issues New Guidance On Credit Cards

Post by Sharat on November 7, 2018 · Under credit cards · Comment 

In a bid to ensure that credit card issuers engage in responsible lending, the regulator ASIC has asked that lenders take up a three-year period when they determine what the appropriate credit limits for borrowers should be. Banks and other providers of credit will now have to assess a borrower’s ability to repay their credit limit in no more than three years, whilst still maintaining the ability of customers to have regular access to credit.

Worries about a debt trap

So far ASIC has not provided a clear reason for the new directive, though many believe the decision is a response to a report released earlier this year that suggested that one in six Australian credit card borrowers were at risk of falling into a debt trap. At the time of the report an ASIC official said that the regulator’s findings confirm that unsecured lending through credit cards cause financial problems for many Australian borrowers.

Borrowing is problematic

Other research also suggests that nearly 20 per cent of all Australian credit card borrowers are in a debt trap with ten per cent of all borrowers carrying a credit card balance for more than ten years. Credit card debt is widely acknowledged to be problematic in Australia with more than half of all credit card holders having at some point in their lives accrued debt. The habit cost Australians as much as $5.5 billion in interest every year which when amortised across all credit cards amounts to $713 per card holder.

Regulations take effect next year

ASIC has given additional guidance to credit card issuers when they are assessing the ability of a borrower to repay their credit limit over a three-year period. This includes the fees on credit card accounts, the interest rates charged by other issuers on their credit cards and the effect of the new policy on responsible lending for other types of borrowing. The new regulations will become effective January 1st 2019 and at that point, card issuers will be expected to have systems in place to ensure they comply with the new regulation.

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