What you can expect from the Australian credit card reforms
In September 2018, ASIC announced changes would be made to the way credit card providers determine the credit limit on your card. Moving forward, if you are applying for a new card or a credit limit increase, you will be assessed on your ability to pay off the entire credit limit.
Following consultation with several banks and industry bodies, ASIC has decided a three year period will be used by providers when assessing applications for new credit cards and credit limit increases. This means that the provider needs to be comfortable that you can pay off your credit limit in three years before approving your application.
These changes come into effect on the 1st of January 2019.
The three year period was chosen by ASIC in order to achieve a balance between preventing consumers from being approved for credit contracts that were unsuitable for them, while still allowing consumers to still have reasonable access to credit through credit cards. The reform still allows consumers to retain the flexibility to make low minimum repayments on credit cards. A period of three years was also seen by ASIC as being appropriate to encourage consumers needing larger loans with longer repayment options to move into lower cost products, such as some types of personal loans.
ASIC has stated that it does not expect that the reforms will have a substantial effect on the ability of consumers to ensure their credit card has features that suit their needs. They have acknowledged that there may be a reduction to the credit limits available to low income consumers who may have previously been able to access higher limits, but that these consumers will still be able to access credit cards.
They do however expect that a small number of consumers will not be able to be approved for a credit card, or who cannot pay off their existing credit card debt to a level below which they could switch to a different provider if they chose to do so.
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