Submissions in response to Treasury’s paper, Credit cards: improving consumer outcomes and enhancing competition, are due this Friday, 17 June 2016.

Key proposals of the paper

Amend responsible lending obligations so that a credit card contract or credit card limit increase will be unsuitable if it is likely that a consumer would be unable to repay the whole credit limit within a reasonable period. Currently, many issuers assess a consumer’s ability to pay the minimum repayment for a credit card, rather than the actual credit limit.

Prohibit unsolicited credit limit increase offers all together which will mean a credit limit can only be made at the request of the consumer.

Standardise and simplify the application of interest charges so that when an interest free period is lost due to partial repayment, consumers are only charged interest from the end of a statement period, rather than from the date of the relevant purchase.

Make it easier for consumers to reduce their limit or cancel a credit card by the introduction of online tools.

Ideas the Government will subject to further behavioural studies before forming a view

The paper also suggests a number of other reforms which will be subjected to consumer testing to determine the likelihood that they will positively change consumer behaviour.

  • Require issuers to regularly inform consumers about the annual costs of their individual credit card use (eg their year-to-date interest charges, average balance and repayment behaviour)
  • Clearly convey ongoing interest rates and annual fees in advertising
  • Notify consumers electronically when an introductory offers is about to expire
  • Notify consumers electronically of how much credit they have used
  • Provide the consumer with personalised information on potential savings from alternative credit card products (eg a low-interest card)
  • Proactively provide consumers the option to commit to higher repayments, eg by providing apps or other tools that let consumers set up a plan to pay off their balance within a certain time
  • Provide proactive assistance to consumers who persistently make small repayments, eg by contacting the consumer and offering them a solution such as forbearance

What does this mean for issuers?

The proposals could greatly increase the regulatory burden on issuers, and require issuers to revise their practices and procedures in respect of credit cards. Given the gravity of the recommendations, issuers and concerned industry participants should carefully consider the paper, and decide whether to make a submission by Friday.