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Australian Bankers’ Association comments on
ALP credit card policy proposal
Sydney, 15 August 2010: The Australian Bankers’ Association (ABA) does not believe that there is a sound argument for credit card limit offers to be banned by government regulation.
The ABA was today commenting on the Australian Labor Party’s (ALP) policy proposal on credit card marketing1.
Steven Münchenberg, Chief Executive of the ABA, said: “The vast majority of Australians use their credit card sensibly and responsibly. Credit cards give us a convenient service, allowing spending to be brought forward and paid later, which can be very useful for managing spending between pay periods. The evidence is that credit card default is related to unemployment, illness and family breakdown, not bank marketing.”
Current statistics show that, overall, households are well in control of their finances. For example, since March 2005, on an annualised basis, consumer credit card repayments have exceeded new spending.
Mr Münchenberg said: “Credit card limit offers are just a form of advertising to customers whom banks believe might want greater flexibility with their existing credit limit.”
“When an offer of a credit card or credit limit increase is made by a bank, the service is not instantly provided. The customer must still fill in a form to accept the offer. This means the customer has to make a decision to apply for the credit card or accept the credit limit offer. Customers have a choice – while a credit card or credit limit is offered, the customers can always ignore or decline the offer.”
An offer of an increased credit limit is made after the bank has assessed the performance of the customer with their credit card. Overall, this is a more reliable basis of assessing the customer’s credit worthiness than relying on information provided by the customer at the time the application for the credit card is made.
Initially, the bank will set a conservative credit limit. Performance over time will confirm if the initial credit limit was appropriate and whether the customer can handle a more flexible credit limit, if they are interested.
Mr Münchenberg said: “It is very important that policy proposals do not cause unintended consequences for customers. We are pleased to note that the ALP will consult with the banking industry regarding these proposals. It is also vital that any new requirements apply to all credit card issuers, not just banks.”
“For example, if over-limit fees cannot be charged unless consumers specifically agree that their account can go over the limit, customers will need to strike a balance between the risks of those important payments, such as for groceries, petrol and electricity may not get paid, with potentially paying a fee to ensure these payments are made. These payments may be crucial, especially for those in our community on low incomes.”
“Banks have also either abolished or significantly reduced a whole range of fees, including over limit fees. This means consumers are paying less, without losing the ability to go over their limit, if needed.”
In 2006, the ABA announced principles on credit card lending which gives borrowers more options when deciding whether or not to accept the offer, such as accepting a lower credit limit.
For further information:
Heather Wellard
Director, Public Relations
Phone: 02 8298 0411
Mobile: 0409 830 439
ENDS
[1] Australian Labor Campaign media release “A better financial deal for hard working Australians” issued 16/8/10. |
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