The Labor government has promised to stop banks from pushing higher credit limits on their customers, in a move that could affect over 14 million credit card accounts.
Minister for Financial Services Chris Bowen said the government, if re-elected, will force banks to stop sending customers unsolicited credit offers and demand that repayments automatically go towards the higher interest rate on an account.
“These reforms are a significant step to ensuring hard working Australians do not fall into credit card debt trap,” said Mr Bowen on his blog at the weekend.
The Labor government would also force banks to apply repayments to the costliest interest rate debt and prohibit them from allowing customers to overdraw their accounts with prior permission only to assess an account overdraw fee.
There were 14.6 million credit card accounts in June, according to the Reserve Bank. Australian's combined credit limit was $130.4 billion in June, up from $124.6 billion a year earlier, while repayments rose to $20.49 billion from $19.3 billion over the same period.
The Australian Bankers' Association disputed the need for the regulation, saying customers don't have to respond to the bank's credit offers.
“When an offer of a credit card or credit limit increase is made by a bank, the service is not instantly provided,” said ABA chief executive Steven Munchenberg.
“The customer must still fill in a form to accept the offer,” he said. “This means the customer has to make a decision to apply for the credit card or accept the credit limit offer.”
Mr Munchenberg said most Australians used their credit cards responsibly and didn't need a protection from credit increases. “The evidence is that credit card default is related to unemployment, illness and family breakdown, not bank marketing,” he said.
Shadow treasurer Joe Hockey's office was not immediately available for comment regarding bank credit-card rules.
Credit unions responded cautiously to Labor's announcement.
“The worst outcome would be complex rules that make it harder for credit unions – or other responsible lenders – to deliver, without improving results for cardholders,” said Louise Petschler, the chief of the credit union peak body Abacus.
Ms Petschler said the government should focus more on boosting competition in the banking sector.
Labor's promises come one week after Commonwealth Bank announced a record $6.1 billion in annual profits, unleashing a wave of customer outrage and bringing banks under fresh scrutiny from politicians during the election. Also, last month, consumer contract law reforms came into effect, giving customers more rights and bargaining power with companies.
czappone@fairfax.com.au
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