22-Jun-2017 • Corporate
Today's credit card reforms announced by the Treasurer today don’t go far enough and may stifle switching, lender ME said today.
ME’s Head of Deposits and Transactional Banking, Nic Emery, said three of the four reforms announced by the Treasurer would help protect consumers, including banning unsolicited credit increase offers; simplifying interest calculations; and requiring online reduction / cancellation options.
However, he said the proposal to ‘require affordability assessments to be based on a consumer’s ability to repay the credit limit within a reasonable period’ would do little to protect the majority of those who end up with unpayable credit card debts.
“Most people get into serious credit card debt because of an unexpected event, like loss of employment, which the new affordability assessment won’t and can’t predict,” he said.
“All this requirement will do is stifle competition by making it harder for customers to switch cards.”
ME has been calling for four key reforms since 2016’s Treasury inquiry in credit cards, which go much further than those currently proposed. They include:
1. Mandating comparison rates for credit cards to make it easier for customers to compare, as is currently done for mortgages and like they do in the UK.
2. Requiring banks to prominently advertise credit card comparison rates alongside the headline rate in marketing materials, as is required for home loans, and including the rate any balance transfer or purchase promotional rate will revert to on expiry, to make it easier for customers to compare the cost of credit cards.
3. Making switching easier, given technology to transfer direct debits isn’t complex, to make the credit card industry more competitive.
4. Raising the floor rate for minimum monthly repayments from 2%, given we know paying a little bit more each month can save customers handsomely.
“While credit cards are a modern convenience, offers have become too confusing and standardisation is required. There are dozens of credit cards in the market that apply different fees and use different interest rate calculations, making it difficult for customers to accurately compare.
“Improving competition by making switching easier would motivate banks to make better offers to customers, helping to drive down rates.
“Better industry consultation by the Government might have led to better targeted reforms.”
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