Consumer credit laws

Consumer credit regulation is governed by the National Credit Code (NCC). This code is included in the National Consumer Credit Protection Act (2009). The National Consumer Credit Protection Act is a Commonwealth initiative and replaces the state- and territory-administered Uniform Consumer Credit Code (UCCC).

While consumer credit laws may seem confusing, it’s important to understand how they work, why they’re in place and how they can help protect your finances.

What are consumer credit laws?

Consumer credit laws require all credit providers to obtain a licence with the Australian Securities & Investments Commission (ASIC). Under the National Credit Code, creditors are obligated to provide a credit guide such as a key facts sheet and cannot lawfully issue a loan if you’re going to experience hardship making repayments.

How do consumer credit laws help you?

Consumer credit laws help you make informed decisions about choosing and using credit cards, loans, mortgages and other credit products. They ensure you’re given all the facts before you apply for a credit product and prevent you from getting in over your head; this is why all credit cards have eligibility requirements that you must meet before you can receive approval. These eligibility requirements prevent cardholders with insufficient income or bad credit history from accessing a credit card they can’t afford to repay.

Consumer credit laws also require banks to inform cardholders of any changes that may happen to the product, such as changing interest rates, annual fees and earn rates with card reward programs. They’re also required to inform you of any fees that come with the card, which are usually made available in the card’s Product Disclosure Statement (PDS). Reading the PDS before you apply will ensure that you aren’t sideswiped by any unexpected fees when you start using the card.

Under consumer credit laws introduced in 2011, banks can no longer send cardholders unsolicited invitations for credit card limit increases. Instead, cardholders need to opt into requests for credit limit increases when applying for a card or within their online account. These laws are in place to protect cardholders from the temptation of accepting a higher credit limit and spending more than they can afford to repay without accruing interest.

Steps you can take to protect yourself under consumer credit law

Credit card issuers are required to provide full disclosure of all fees, rates, features and terms and conditions that come with a credit card. However, it’s your responsibility to read over the Product Disclosure Statement and fact sheets to understand what fees come with the card. Before you apply for a credit card, make sure you do the following to ensure you understand how you’re protected by consumer credit law:

1. Read your credit card’s key facts sheet

Key facts sheets give you a snapshot of credit card costs so you can easily see and compare credit card fees and interest rates.

2. Check your minimum monthly repayments

While under consumer credit laws you’re only required to pay the minimum repayment each month, it’s wise to pay more. The minimum monthly repayment is usually only around 2% of the total balance, meaning it could take you months or years to pay off a credit card balance if you only meet the minimum payment; the longer you take to repay your debt, the more interest you’ll accrue. Before you apply, estimate how much you’ll spend and calculate how much you’ll need to pay each month to repay your balance in full and whether or not this is affordable.

3. Decide if you want credit limit increase invitations

You must agree to credit limit increase invitations. Financial institutions can not send you unsolicited invitations to apply for more credit. Even if you decline credit limit increase invitations, you can apply for more credit at any time.

4. Check the fees for exceeding your credit limit

Some credit card issuers allow you to spend past your credit limit, but will charge you a fee if you do so. Usually the bank will give you an option as to whether or not you’d like to restrict or allow credit card overlimits, so you should be aware of the fees involved if you do decide to opt into this.

What to do if you have a problem with your provider

If your credit provider has broken the rules by sending you credit limit increase invitations or charging you a fee for spending over your credit limit, for example, you can lodge a complaint with the Financial Ombudsman Service (FOS).

MoneySmart, a financial literacy website from ASIC, also advises that you first contact the credit provider with your issue before taking it to the FOS. If you’d like to lodge a complaint but you’re not sure where to start, you can download and use template letters from the MoneySmart website. If you haven’t received a response within 21 days, you should take your complaint to an external dispute resolution service such as the FOS.

Consumer credit laws are continuously being reformed and amended by the government. As these laws are in place to protect Australians with credit, it’s important to stay informed and understand your rights before you apply for a credit card.
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