Budget 2017: How will banks tighten credit card practices?
The 2017 budget hinted that change is coming for credit cards, but what can we expect?
The 2017-18 budget was pretty quiet on the credit card front, but the federal government has let it slip that things are about to change for credit cards over the next year. The government said it will clamp down on poor practices in the credit card market by “putting in place new rules on providing credit cards”. While this doesn’t exactly paint us a pretty picture of how things are about to change, we can make a few assumptions based on recent Senate inquiries and conversations in the credit card space.
For example, while applicants currently have to meet a number of eligibility requirements (usually regarding their age, income and residential status), some commentators have maintained that the existing application process has formed the basis for irresponsible lending.
As far back as a Senate Inquiry in 2015, we heard commentators such as Ross Greenwood, David Koch and Paul Clitheroe argue that irresponsible lending was the reason behind the nation’s growing credit card debt. Then in May 2016, we saw the federal government support 8 of 12 recommendations made in a Senate inquiry that pushed for stricter lending obligations to ensure customers are able to repay their loans before they’re approved. While the details haven’t been confirmed, this could mean that cardholders will be required to show more evidence of their ability to repay than just their annual income.
In the same inquiry, Labor senator Sam Dastyari called for credit card providers to increase communication with customers. Dastyari suggested banks needed to show customers more proactive support by contacting them when their balance transfer periods are near expiry or if they've only been paying the minimum repayment each statement period. While we don't know what the banks will do to address these issues, the government has plans to provide customers with support via an external body.
As part of the 2016 budget, the federal government introduced a new Australian Financial Complaints Authority to act as a one-stop-shop external dispute resolution service for bank, financial service and superannuation customers. Essentially, this means that cardholders can seek free assistance and fair compensation if they’ve suffered loss due to their financial institution. Overseen by the Australian Securities and Investments Commission (ASIC), the AFCA will be chaired by an independent board.
The federal government also announced that it was planning to introduce a new levy on banks which have liabilities of more than $100 billion. Naturally, this is largely aimed at the Big Four (ANZ, CommBank, NAB and Westpac) rather than smaller banks. The levy is expected to raise $6.2 billion over the next four years. However, whether or not these levies will be passed on in customer fees remains to be seen.
While details around credit card changes remain murky following the budget, make sure to follow finder.com.au for more details as they arrive.