The National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Act 2011 (Cth) will soon change Australia’s laws and obligations relating to credit cards.
The National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Act 2011 (Cth) (New Credit Laws) recently received royal assent and it is vital for banks and other credit card issuing institutions to understand how the New Credit Laws will impact upon their current lending practices. Failure to do so may result in those institutions breaching their obligations under their credit licences and becoming subject to certain penalties.
While the New Credit Laws deal with both credit cards and home loans, this article only considers the new rules for credit cards.
What will the New Credit Laws govern?
The New Credit Laws are part of the Federal Government’s Fairer, Simpler Banking policy and will amend the National Consumer Credit Protection Act 2009 (Cth) to introduce four new obligations on credit card providers. In particular, credit card providers will be:
- required to provide key facts sheets to customers before entering into credit card contracts
- restricted in making offers to customers to increase their credit limits
- required to notify customers who use their credit cards in excess of the card’s limits and will be restricted in imposing fees, charges and higher interest rates when this occurs, and
- required to apply payments made by customers in a particular manner.
These new laws should apply from 1 July 2012.
Credit card application to include key facts sheets
Under the New Credit Laws, credit providers must not enter into, or offer to enter into, credit card contracts unless the application includes a key facts sheet or the customer has been provided with one. It is anticipated that key facts sheets will need to include information concerning the different credit card products available to the customer and the minimum credit limits, interest rates and fees and charges applicable to those products. All information contained in the facts sheet must be accurate and upto- date.
Restrictions on credit limit increases
A credit card must not invite a customer to increase its credit card limit unless that customer has given its prior informed consent. Under the New Credit Laws an invitation will be made when the credit card provider gives its customer a written invitation that:
- offers to increase the credit limit of the credit card contract
- invites the customer to apply for an increase of the credit limit on their credit card contract, or
- encourages the consumer to consider applying for an increase of the credit limit on their credit card contract.
A customer will give its express informed consent when the customer agrees to receive credit limit increase invitations and the credit card provider informs the customer that it has the discretion to apply for an increase, the credit card provider has the discretion whether or not to grant the increase and the customer’s consent can be withdrawn at any time.
Banks and other credit card issuing institutions will also be required to maintain a record of the consents and withdrawals of consents it obtains.
Requirements relating to credit cards used in excess of their limit
Credit card providers may be required to notify their customers if they use a credit card beyond its limit.
If a credit card is used in excess of its limit the credit card provider cannot impose a fee, charge or higher rate of interest to that customer unless the customer has expressly consented to that additional charge.
Where a fee, charge or rate of interest is imposed by a bank or other lending institution without the customer’s express consent that fee, charge or interest is deemed to be prohibited and inconsistent with the National Consumer Credit Code.A record of the consents and withdrawals of them must be kept by the credit card provider.
Application of payments
Banks and other credit card issuing institutions will be required to apply payments received from their customers in the following ways:
- where the customer has requested certain payments to be applied against a particular amount and the credit card, and the provider has agreed to that request, in accordance with the customer’s request, or
- in all other circumstances, by applying the payment against the part of the credit card balance to which the highest interest rate applies, then against the part to which the next highest interest rate applies, and so on.
What these changes will mean for you
The New Credit Laws may require significant changes to credit card provider’s credit card application processes, terms and conditions, and other recording keeping practices. It is critical to be aware of these changes and understand how they may affect your business.