Federal Parliament has passed into law strict new rules aimed at curbing the unethical or exploitative behaviour of credit card companies, in a move that has been welcomed by consumer advocates.
The new rules, which passed the upper house on Thursday afternoon, will make it much harder for banks and other credit providers to hide uncompetitive or unfair clauses from their customers in the fine print of credit card contracts.
The bill contains four key reforms relating to credit cards.
The first tightens responsible lending obligations for credit card contracts.
The second prohibits banks and other lenders from contacting customers to offer them unsolicited credit offers – in particular offering to raise the borrowing limit on existing credit cards.
Currently the law forbids providers from making these sorts of offers in writing, but says nothing about making them by phone and other mediums.
The government said providers were exploiting this loophole often to the detriment of consumers. The new rules ban such promotions outright.
The third reform bans the practice of backdating interest rate charges.
Under current rules, some providers were enticing new customers with promotional offers such as an initial month of no interest.
However, when a customer failed to pay off in full a credit card bill after the first month, the credit card company was often retrospectively applying the new interest rate to previous purchases.
While providers were disclosing this practice in the fine print of their contracts, the government said the practice did “not align with consumers’ understanding and expectation about how interest is to be charged”.
The new rules ban the practice.
The final reform makes it much easier for customers to reduce their credit limits and terminate credit cards, most significantly by requiring providers to make it possible to do both online.
Prior to this the government said some providers had required customers to come into a bank branch to reduce limits or terminate cards, and when they did come in were often persuaded not to do it.
Consumer advocate group CHOICE welcomed the new rules.
“For years, banks have been forcing consumers to jump through hoops when they try to cut ties with debt. Meanwhile, banks are offering online credit card approval under 60 seconds,” CHOICE chief executive Alan Kirkland said.
“CHOICE has been calling to abolish this blatant attempt to keep people attached to their credit card and debt since 2015.
“Too often banks have loaded up consumers with excessive credit limits without properly considering a person’s ability to repay. This is made worse by banks requiring consumers to go through archaic offline processes in order to cancel or limit a credit card.
“Unfortunately, getting stuck paying excessive credit card interest is only one of the traps consumers face, with many of us paying excessive annual fees when we are unable to cancel a card.”
Financial services companies are currently the subject of a royal commission, which was officially launched on Monday.
In his opening statement, Commissioner Kenneth Hayne, a former high court judge, said the initial focus would be on lending practices, including mortgages, car loans and credit cards.
The next public hearing is expected to take place in March.