If you've heard about the changes to credit card rules that are being introduced this year in Australia, you might be wondering how they apply to you.
The good news is that these reforms are designed to protect consumers by preventing banks, credit card companies and other lenders from using disreputable sales tactics that encourage people to get further into debt than they can comfortably afford.
What's changing?
In July 2018, the government introduced the first of four credit card reforms that amend the National Consumer Credit Protection Act 2009. Under this reform, credit card issuers are no longer permitted to invite customers to increase their credit limit – the amount they're allowed to borrow on their card every month.
Customers can still choose to request a limit increase themselves, but they may not be persuaded to do so by advertising or any communication from their bank via email, over the phone, through the post or in person.
From January 2019, three further reforms will be introduced:
- Requests to increase credit limits must now be assessed based on the borrower's ability to afford the repayments and avoid penalties.
- All credit card holders must be given the option to close their accounts or reduce their credit limits online, without persuasion from the credit card company to stay.
- Credit issuers can no longer charge backdated interest.
Why is this good news?
Credit card debt is a vicious cycle that many Australians find themselves trapped in. Missed payments can lead to penalties and higher interest rates that quickly grow beyond the borrower's means to pay back. Some disreputable lenders take advantage of borrowers in these situations by offering them the chance to take out more credit – a quick fix that often makes the problem worse in the long run.
Recent research from finder.com.au found that more than one in three Australians have extended their credit limit and regretted that decision within the last five years. More than half did so following an invitation from their credit issuer, with only 43 percent asking for an increase without being prompted.
By preventing credit issuers from encouraging bad borrowing habits and tempting customers into more debt, credit card holders are being encouraged to be more responsible and to think carefully before making important financial decisions. The ongoing reforms aim to prevent borrowers who are already heavily in debt from making their situations worse.
Can I still increase my credit limit?
These changes won't prevent most borrowers from accessing a higher credit card limit. The main difference is that requests are now subject to strict assessment in line with ASIC rules, and extensions may not be offered if it's decided that you may not be able to keep up with the repayments.
If you need to borrow money but you're not eligible for a credit card limit increase, you may still be able to access other types of finance such as a personal loan, if the repayment terms are within your means. Speaking to a financial advisor will help you to understand your options and decide what's right for your circumstances.
If you need help to get out of debt and you want to know what your options are, Debt Fix could help. Call us on 1300 332 834 to arrange a confidential, no-obligation consultation with our experts today.