How credit card rules will change in 2016, and what you can fix yourself right now
Senate Inquiry report pushes for credit card changes in favour of customers in the new year
Credit card providers have been slammed for unethical practices, excessive fees and ambiguous terms and conditions in 2015. The six-month Senate Inquiry into credit cards has done its best to bring many of these injustices to light, endeavouring to improve consumer protection and conditions.
The inquiry released its final report on held on Wednesday 16 December 2015, and announced plans for some major changes to the $50 billion credit card industry. The main goal of the proposal is to increase competition after evidence to the inquiry suggested that rates and fees are ridiculously high. Headed by Labor Senator Sam Dastyari, the inquiry saw representatives from the big four banks and politics debate future regulations for the credit card market.
Here we’ve summarised some of the proposed changes you can expect in the new year and how you can manage your credit card more effectively.
Change: Improve customer protection
The inquiry has pushed for providers to protect, rather than exploit, customers who are unable to repay their credit cards. It’s believed that banks and providers should conduct tougher tests to confirm whether cardholders have the ability to pay off the card rather than just enforcing the minimum repayment. However, the committee’s report won’t make a case for standardised higher minimum repayments.
What can I do?
There are a few simple strategies you can employ before these changes are enforced to keep your finances in check. Before applying for a card, consider all of the fees and rates in place (including the revert rates if there are promotional offers available) in conjunction with your income and other expenses to ensure that you can afford it.
If you are approved for the card, you can create your own personal budget and minimum repayment (preferably one that is higher than the standard minimum repayment) to work towards. This will help you keep your finances in check and will ensure you can repay your card in order to enjoy the perks of the card (such as interest-free days, rewards and avoiding revert rates if you repay your balances in time).
Change: Simplify switching banks
Switching banks isn’t always the easiest transition. While banks are likely to challenge customer mobility, with the argument that it could cost them millions of dollars, the Senate Inquiry believes it will have greater benefits for customers.
Currently, if cardholders contact their provider and express their wish to switch, they’re connected to a customer service team whose job is largely to persuade cardholders to stay put. Instead, the Senate Inquiry encourages greater portability with the belief that this will result in more “vibrant” competition. This proposal is backed by both Liberal and Labor parties, with the latter working on policy options in parallel to the inquiry.
What can I do?
If you’re looking to switch banks, make sure to compare your options to determine which one is right for you. Once you’ve made this decision, you can contact the bank to close your account.
As mentioned above, expect to be transferred to a customer service representative who will do their best to persuade you to stay onboard. It’s best to call your provider once you’ve decided on a new bank because you’ll be less likely to buckle under pressure once you've committed to your decision. You can also jot down a short list to remind you why you chose to switch banks to keep as a reminder while you’re on the phone.
How to choose a credit card?
Change: Standardised minimum repayment
Representatives argued that credit card customers should be forced to make a standardised minimum repayment to help keep cardholders out of debt. The inquiry didn’t decide on a set monthly repayment, but 2.5% of the total outstanding balance was suggested.
What can I do?
Most card providers and banks pose their own standard minimum repayments that cardholders must meet. However, paying more than this minimum amount will ensure that you repay your debt faster and will reduce the amount of interest you’ll accrue over time. You work towards your own budget and aim to pay your own minimum income (that is higher than the standard minimum) to help you cut through your debt faster.
Change: Say goodbye to high interest rates?
While credit cards have no set terms, the inquiry report said that it was high interest rates that have stopped credit cards from becoming long-term loan options and caused customers to jump ship to other cards. Rather than trying to regulate card interest rates, the inquiry suggested that providers consider lower rates to encourage more competition.
"We're prepared to do this without setting interest rates – that would be the nuclear option," Dastyari said. "We're looking at responsible lending and trying to create more competition [first].”
What can I do?
You can avoid high interest rates by comparing credit cards with low interest rate offers. Whether you’re looking to repay an existing debt at a lower rate or repay your purchases without extra interest costs, you can look for cards with 0% interest offers on balance transfers or purchases. To ensure that you repay your debt before the promotional offer ends, use the minimum repayment plan mentioned above to give you a goal to strive for when repaying your balance.
Change: Advertising fees and rates with greater transparency
Speakers at the Senate inquiry have accused banks of taking advantage of “consumer inattention” and burying the terms and conditions of revert rates and other hidden fees in the terms and conditions.
“In this sense, while consumers might apply for a credit card on the basis that it represents good value as a payment system, they often end up with what is, in effect, a decidedly poor value debt product,” Dastyari said.
Instead, the Senate inquiry argued that providers need to advertise fees and rates more openly so that cardholders know what they’re getting into before applying for a credit card.
What can I do?
While banks don’t go out of their way to advertise expensive fees or the revert rates at the end of promotional offers, they are available for the public to see. You can look at the relevant product disclosure statements related to your credit card to confirm all of the related fees and rates. If you’re confused about any of these, contact the provider and ask for a customer service representative to explain it in further detail.
The more you understand about the fees and rates involved, the greater chance you’ll have of making an informed decision that will ensure that you pick the right card for you.
Change: Let cardholders plan and consider alternatives
Representatives of the inquiry also suggested that banks should have to provide customers access to their personal transactions. Customers could then use this transaction history to how much a credit card will really cost them. Providers were also encouraged to promote other loan alternatives outside of credit cards, such as personal loans, that will allow cardholders to take advantage of lower interest rates.
What can I do?
Providers may not make a conscious effort to promote such information, but if you ask you’re likely to receive. If you’re unsure whether you can afford the credit card you’re interested in, contact the provider to discuss your likelihood of acceptance and whether there are other cards that might better suit your financial situation.
If you’re already struggling with a debt, contact your bank to discuss whether they have any alternatives to help you consolidate your balance. If you mention that you’re interested in conducting a balance transfer, the provider are more likely to provide you with special offers or repayment alternatives to try to stop you from jumping ship to another provider.
Change: Expiring promotion reminders
Currently, providers don’t make too much of an effort to remind cardholders that their promotional offer is about to end. Given a higher revert rate will kick in at the end of the offer, it’s no wonder why they stick with this strategy. However, the inquiry has pressured providers to make “reasonable attempts” to contact customers to warn them when the 0% balance transfer period is about the end. This proposal aims to provide cardholders with a greater opportunity to compare their options to either make an effort to repay their debt before the revert rate returns or consider another balance transfer card.
What can I do?
If you’re taking advantage of a balance transfer or purchase offer for a set period of months, you could set reminders on your phone or computer calendar to alert you as the end date comes closer. Also, if you set up a budget to follow each month, this will help you repay your balance and avoid any nasty surprises when the promotional comes to a close.
As the Turnbull government aims to confront some of these challenges in the new year, credit card customers can expect at least some of these changes to come to fruition. Even if some of the proposals aren’t rolled out in the immediate future, there are ways that you can take control of your finances to ensure that you’re not caught out by hidden fees, expensive rates and other credit card traps. Do as much research as possible, compare your options and make an educated choice that’ll lead to the right credit card decision for you.Back to top