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RESPONSIBLE LENDING – BANK CODE AND DEBT INITIATIVES
ALREADY IMPLEMENTED BY ABA MEMBER BANKS
Sydney, 22 November, 2005: The Australian Bankers’ Association (ABA) said two self regulatory initiatives on responsible lending have already been implemented by ABA member banks.
The ABA’s Code of Banking Practice provides direction to banks, as do the debt initiatives1, which were announced in March last year.
The ABA was responding to today’s media release from the NSW Minister for Fair Trading calling on banks to implement responsible lending practices.
The ABA member banks that have adopted the Code of Banking Practice subscribe to this Code lending standard:
“Before we offer or give you a credit facility (or increase an existing credit facility), we will exercise the care and skill of a diligent and prudent banker in selecting and applying our credit assessment methods and in forming our opinion about your ability to repay it.”2
In addition, the debt initiatives were implemented by ABA member retail banks to address a number of community concerns over problems associated with debt, in particular, credit card marketing. The first key measure was if the customer’s circumstances had changed, or were likely to change, they should not accept the credit limit increase offer, but instead contact their bank. Secondly, the customer would be told how much more they would have to pay if they utilised the full increased limit.
Individual banks can develop their own practices, policies or code to communicate with their customers on their approaches to lending.
There are a minority of Australians who experience difficulties for a variety of reasons, including after experiencing a major change to their circumstances, such as job loss or relationship breakdown.
David Bell, Chief Executive of the ABA, said: “I understand the Ministerial Council on Consumer Affairs is currently looking at these issues and we would be happy to attend any meeting to brief the Ministers.”
The latest Reserve Bank of Australia (RBA) credit card data supports the view that the majority of Australians use their credit cards to manage their spending and are demonstrating their capacity to manage these facilities well.
In the first three months of this financial year (2005-6), consumers have been ahead on repayments on an annualised basis, according to RBA data.
Over the year to September 2005, repayments on credit cards have exceeded new transactions by almost $600 million, reaching a level of $167.2 billion.
Looking at the ratio of repayments to new transactions (annualised), this is the best result since September 1997.
David Bell, Chief Executive of the ABA, said: “Over the Christmas period, consumers traditionally make more credit card purchases and take on more debt, but at the same time, consumers are also making more repayments to manage this debt.”
Data over the Christmas period displays highly seasonal effects. In December, transactions rise considerably as expected, but so do repayments. By January, the strength of repayments means that most of the Christmas debt has been repaid. To appreciate the effect of the Christmas period on the household budget, it is important to consider this data over a few months as this is how consumers traditionally manage their finances. December alone cannot be singled out.
Additionally, the RBA data shows the majority of customers pay off their credit card accounts at least once a year and a line of credit assists customers smooth their expenses over the whole year.
Credit card debt accounts for 4% of total household debt - the home loan accounts for the majority of the total household debt figure.
Notes for editors:
Under the ABA’s debt initiatives announced in March last year, banks have agreed to provide:
- Information, in letters to customers offering increased credit card credit limits, on how much more customers have to pay each month, if they take up the offer. The customer will then easily be able to assess the increased repayments needed if they use the additional credit.
- Advice to customers, included in marketing material, that if their personal circumstances have recently changed, for example, loss of employment, or are likely to change, for example, maternity leave, they should not accept any credit card credit limit increase offer, and should immediately contact their bank.
- A capacity for individuals to opt for a lower credit card credit limit than the increase their bank has offered. For example, a customer can opt for a $1000 increase in preference to the $2000 limit increase offered.
- An industry benchmark that any ABA member bank customer can reduce their credit card credit limit:
- If the bank has a telephone facility to do this – within 24 business hours of receipt of request;
- In any other case – within 48 business hours of receipt of request.
For further information:
Heather Wellard
Director, Public Relations
Phone: 02 8298 0411
Mobile: 0409 830 439
ENDS
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