Banks ordered by ASIC to follow new credit limit regulations
In order to enforce responsible lending, ASIC has asked that banks and credit card providers to employ a three-year period when determining appropriate credit limits for customers.
Banks and credit providers will now be expected to assess a customer’s capability to repay their credit limit within three years, while ensuring they still have regular access to credit through their contracts.
While ASIC have given no clear reason for the proposal, the decision might have come in response to a report released in July this year, revealing that one in six Aussie cardholders are at risk of falling into a ‘debt trap’.
“Our findings confirm the risk that credit cards can cause financial difficulty for many Australian consumers,” said ASIC Deputy, Chair Peter Kell at the time.
Similar research by Mozo also found that one fifth of Aussie cardholders are trapped by long term debt, with one in 10 carrying a balance for over a decade.
“Credit card debt is a festering problem in this country with exclusive research from Mozo showing more than half of cardholders have accrued debt on their credit card at one point in their lives. This habit sees Australians blow $5.5 billion in interest charges each year - equating to $713 per cardholder,” explained Mozo Director, Kirsty Lamont.
ASIC has also provided institutions with further guidance on assessing whether a customer can repay their credit limit in three years, including guidelines on:
- Fees on credit card accounts
- Interest rates charged on credit card contracts held with other credit providers
- The effect of the reform on responsible lending assessments for other credit products
From January 1 2019, credit providers will be expected to have systems in place to abide by the new regulations.
But with the rising number of Aussies falling into the so-called ‘debt trap’ with their plastic, we thought it might be time to have a quick refresher on the do’s and don’ts of managing your credit card balance.
- If possible, try to pay off your credit card spends ASAP. This will prevent overspending, missing the due date and getting hit with a late payment fee.
- If you’re guilty of impulse spending, leave your plastic at home as often as you can.
- Set a direct debit to pay your credit card bill in order to never miss a payment.
- Get debt-free faster by paying more than the minimum required payment.
- Spending more than 30% of your available credit limit. As a rule of thumb, keeping your credit utilisation relatively low is a better strategy than maxing out your cards.
- Using your credit card to pay for groceries or other necessary items. You might be better off looking into other ways to trim your budget than putting yourself deeper into debt.
If you’re thinking about picking up a new piece of plastic, you’re going to have to do some shopping around. Our credit card comparison tool can help you compare low rate options to luxe platinum offers.