25 May 2016

CU LAB: Credit card reforms: what do they mean for issuers

Changes to credit card regulation are on the way.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.


The Federal Government has recently announced its response to the Senate Committee report on credit cards. Its response comprises two phases. The first phase is drafting of legislation around four particular issues, and the second phase is consumer testing and behavioural testing around certain disclosures and information and practices.

In relation to the first phase, the Federal Government has announced a consultation period up to 17th June this year, which is unaffected by the Federal election. The four areas for legislation are first, the Federal Government wants to mandate responsible lending testing for affordability on the basis of repaying the credit limit over a reasonable period of time, not (as currently can be the case) repaying the minimum repayment which is generally a small amount at a time. So therefore this would impose more onerous standards upon credit providers to ensure that their customers can meet their obligations under the contract.

The second area for legislative reform is that the Federal Government wishes to outlaw completely the practice of unsolicited credit limit increase offers being provided to customers. Currently the position is that in certain circumstances where consent is obtained in advance unsolicited credit limit offers can be given to customers. This process is to be outlawed entirely under the proposed legislation.

The third area is that the Federal Government wants to outlaw the practice of interest being charged retrospectively under credit cards. Currently the position is that under many products if a balance is not repaid by its due date in full under a credit card, the credit provider is entitled to charge interest on purchases made from the date they were debited to the account, notwithstanding that even some of the amounts of these purchases had been paid off in that period. What the Government would like to do is outlaw that practice, and instead impose a requirement that interest can only be charged from the due date on the balance outstanding as at the due date.

The final area for legislative change is that the Government is proposing to require credit providers to offer simple electronic means of enabling customers to either cancel credit cards or reduce credit limits.

These are all legislative changes and it will be interesting to see the legislation following a consultation process, and it will necessitate credit providers to change both their systems, procedures and even their documentation in order to comply with this legislation.

The second phase involves behavioural testing around disclosure and information to be provided by credit providers in relation to fees and annual percentage rates. It also proposes to test information disclosed around potential alternative cheaper products to credit cards and providing consumer with information about this. Products such as personal loans would fall within this description.

So there is to be a reasonable amount of change or potential change in the credit card space, and card issuers will need to watch out and need to be conscious of these changes and potentially amend their systems, procedures and documentation to meet them.