ASIC has today issued a consultation paper (CP 303) which proposes responsible lending assessments for credit cards be based on whether the consumer can afford to repay the credit limit within three years.
This proposal follows recent reforms to the regulation of credit card lending. Under the revised responsible lending obligations, a credit card contract or credit limit increase must be assessed as unsuitable if it is likely that the consumer would be unable to repay the credit limit within a period prescribed by ASIC.
The purpose of this new reform is to make sure that consumers can afford to repay their credit card debts within a reasonable period. Consumers will still retain the flexibility to make low minimum repayments on credit cards.
ASIC is proposing a three-year period to strike an appropriate balance between:
- preventing consumers from being in unsuitable credit card contracts; and
- ensuring that consumers continue to have reasonable access to credit through credit card contracts.
The new reform will apply to credit licensees providing credit or credit assistance in relation to both new and existing credit card contracts from 1 January 2019. ASIC will make a decision about the period to prescribe following the consultation process.
The closing date for submissions is 31 July 2018.
Background
On 16 December 2015 the Senate Economics References Committee released its report relating to credit card interest rates, Interest rates and informed choice in the Australian credit card market. A primary concern of the Committee was that too many Australians are 'revolving' credit card debt for extended periods of time while paying high interest charges.
In March 2018, the Government implemented the first phase of reforms in response to the Senate Inquiry.
ASIC's has reviewed credit card lending in Australia. ASIC's report released today (REP 580) finds that while credit cards offer flexibility, they can present a debt trap for consumers. In June 2017 18.5% of people with a credit card were having problems – either missing payments, carrying a lot of debt or repeatedly repaying small amounts. This includes almost 550,000 people in arrears, an additional 930,000 with persistent debt and an additional 435,000 people who made repeated low repayments.
ASIC expects credit providers to take proactive steps to address consumers with problematic credit card debt.