As part of its ‘election commitment to crack down on unfair treatment of Australians with credit cards’, the Government has passed new legislation that places restrictions on credit card limit increases and transactions on credit cards over the credit limit.
The National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011 was passed by both houses on 4 July. This is the latest episode in the government’s implementation of its ”Fairer, Simpler Banking Policy”.
Restrictions on offering credit card limit increases
From 1 July 2012, it will be a criminal offence to make a limit increase invitation to credit card customers (including customers that entered into credit card contracts before that date). The prohibition extends to any written communication to customers that:
- offers to increase their credit limits;
- invites them to apply for credit limit increases; or
- has the purpose of encouraging them to apply for credit limit increases.
The only exception is where a customer has provided their express consent after being informed of certain prescribed matters (including that they have the right to withdraw their consent at any time).
Interestingly, the new prohibition on credit card limit increases does not expressly prohibit offering customers a new credit card with a higher limit (although there are existing prohibitions on offering unsolicited credit cards to customers under the ASIC Act).
Restrictions on charging fees for transactions above the credit limit
The original bill that was introduced to the House of Representatives prohibited credit providers from approving credit card transactions above a customer’s credit limit. However, this position was abandoned and the final bill imposes more limited restrictions. Most importantly, from 1 July 2012 credit providers will be prohibited from imposing any fees, charges or higher rate of interest for exceeding the credit limit, unless the customer has expressly consented to them. The consent will only be effective if, before it is obtained, the credit provider makes certain disclosures to be set out in the regulations.
New Disclosure Obligation - Key Facts Sheets
From 1 January 2012, credit providers will be required to provide Key Facts Sheets to their customers for their standard home loans and credit cards. The Key Facts Sheets are intended to be simple, standardised summaries of the product that will allow customers to more easily compare similar products from different providers. The precise content of the Sheets will be prescribed by the regulations, but they will generally include information concerning interest and charges, repayment plans and other key product features.
A Bridge Too Far?
Senator Nick Xenophon once again tried to use this bill as an opportunity to introduce further restrictions on fees charged by banks. First, he proposed an absolute ban on all early termination fees in relation to all loan agreements entered into by a bank that has more than 10% of the Australian market share. This goes further than the new regulation 79A, which imposed restrictions on early termination fees (see previous Regulator article). Second, he proposed a requirement that all credit fees and charges imposed by credit providers must be reasonable. The Federal parliament did not appear to have much appetite for such sweeping changes. Neither proposal was passed.