Banks refute ban on credit limit increases
The ABA refuses to abolish the banks’ ability to offer credit limit increases to customers.
The Australian Bankers’ Association (ABA) has responded to the independent review of the Code of Banking Practice with both rejections and agreements this week.
While the independent review included many recommendations, its comments regarding credit limit increases have been the cause of much contention. The review suggested that the banks should be prohibited from offering higher credit limits unless the customer initiates the request. So, rather than opting in to receive credit limit increases when you apply for a credit card and allowing the bank to contact you with offers to lift your credit limit, cardholders would need to contact the bank to request a limit increase. ME Bank brought up similar requests in its submission to the Standing Committee on Economics earlier this month.
However, the ABA rejected this notion on the basis that cardholders can already opt out of credit limit increases. While the recommendation had good intentions that aimed to encourage responsible lending, the ABA is technically correct. If you don’t wish to receive credit limit increases, all you need to do is tick a box during your application or contact your bank and opt out over the phone. You can see our guide on how to reduce your credit limit for the information you'll need to contact your bank.
While the ABA rejected the notion to completely ban bank-issued credit limit increase offers, it did agree to make it easier for cardholders to reduce their credit limits. The ABA also agreed that banks should only offer credit limit increases once they had assessed the customer’s ability to repay the full credit limit in a reasonable time period.
Although the ABA rejected the ban on credit limit increases, it did accept 61 out of the 99 suggestions put forward. One of the major changes that will impact how customers use and understand their credit cards includes banks using "plain English language" so that Australians can better understand their banking rights and responsibilities. Hopefully this will mean the end of complicated jargon that makes digesting those T&Cs even more unbearable.
Banks will also provide more assistance for cardholders who are experiencing, or at risk of, financial difficulty so that they can take control of their finances before doing too much damage. The ABA also vowed to launch a new section dedicated to small businesses that will simplify terms and conditions and give more notice when loan contracts change.
While some of these agreements are a little vague at the moment, fingers crossed that we will see more specific examples of these initiatives rolling out in the coming months. In the meantime, contact your bank if you want to avoid the temptation of a higher credit limit and only accept an invitation to increase your credit limit if you're sure you can repay the balance without falling into debt.