The Australian Securities and Investments Commission is urging the credit card industry to improve its lending assessment as many customers are issued cards that do not match their lifestyle, according to The Australian Financial Review (AFR).
Research has revealed that almost 60% of consumers with continuing dues were keeping this debt for a long time, and were charged an average of $1.5 billion in fees in the last two years.
In response, the country’s corporate regulator is calling on banks to make sure that credit card holders are not locked into extended, high-interest debt. ASIC is set to require banks to assess credit card borrower's capacity to completely repay their credit card debt in a period of three years, under stronger responsible lending laws on cards.
While some banks are taking “proactive” steps to address the problem, ASIC Deputy Chairman Peter Kell firmly asked country’s biggest lenders to "respond swiftly to [their] findings.”
Existing data showed that customers could be saving about $621 million in interest payments every year if unpaid amounts were put on to cards with a 13% interest rate, instead of the over 20% rates on cards offering "benefits" such as frequent flyer points, The Australian Financial Review reported.
"As soon as you start paying interest on a credit card, that amount is likely to be significantly more than any benefits you get from points or other honeymoon inducements," said ASIC Senior Executive Leader Michael Saadat in his interview with The Australian Financial Review.
Saadat added that banks are more concerned with their bottom line than the welfare of the customers. "People who are just keeping their head above water are very profitable for a bank as they are paying a lot of interest and fees, but are not in delinquency.” He said. “But we don't think it's good enough to allow consumers to continue to struggle when the bank knows they would be better off with a lower rate card.”
ASIC will also deliberate on the three-year time frame it aims to establish via these new laws. That period is longer than the five-year period the banks have lobbied in their new Code of Banking Practice, which is still with ASIC for approval.
"Based on the findings of our review, we expect credit providers to improve their practices," said ASIC. "We expect credit providers to proactively look for signs of problematic credit card debt."
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