Sydney, 19 September, 2006: The banking industry has shown leadership in proposing best practice principles on credit card lending practices which indicate how banks will decide whether to approach a customer to offer a credit card limit increase.
The proposed principles were presented by the Australian Bankers’ Association (ABA) to the meeting of the Ministerial Council on Consumer Affairs (MCCA) held on Friday, 15 September, in Melbourne.
The ABA urged the MCCA to encourage all providers that issue credit cards such as credit unions, building societies, retailers and other non-banks, such as Virgin and GE Money Australia, to adopt the principles.
A consistent theme in the ABA’s meetings with members of the Ministerial Council on Consumer Affairs (MCCA) is that banks should be showing leadership in the setting of responsible lending practices. The ABA has taken this message back to its members and produced best practice principles indicating how banks will deal with the decision of whether to approach a customer to offer a credit card limit increase.
The proposed principles outline steps a bank may take in deciding whether to offer a credit limit increase to a customer.
Importantly before approaching a cardholder with an offer of an increased credit limit, the proposed principles state that an ABA member bank may take into account the cardholder's income, including whether, in the course of dealing with the cardholder, the bank becomes aware that they are in receipt of a welfare payment that is their sole source of income.
The ABA was pleased the MCCA welcomed the proposed principles but was disappointed with a media release from the NSW Fair Trading Minister, Diane Beamer, which contemplates introducing regulation without first further consulting the banking industry on the proposed principles.
David Bell, Chief Executive of the ABA, said: “The NSW Government wants to reduce red tape, but its Fair Trading Minister seems out of step with this pledge. Minister Beamer is actively discouraging industry initiatives which address concerns around credit card lending practices.”
“Adoption of these principles by non-banks seems to have escaped Minister Beamer’s attention as a responsible measure worthy of Ministerial support. The banks have shown willingness to propose these principles and would encourage non-banks to meet these high standards.”
The ABA will continue to consult with all MCCA Ministers with the aim of implementing the proposed principles without introducing unnecessary regulation for credit card issuers.
As the banking industry has so far not been consulted on the NSW Government’s plans, the ABA looks forward to detailed consultation on all aspects of its proposal.
Draft PRINCIPLES FOR BANK INITIATED CREDIT LIMIT INCREASE OFFERS ON CREDIT CARDS
The ABA and its member banks recognise community concerns over issues related to the level of household debt, and understand that events occur in the lives of borrowers that neither they nor their lending bank can foresee.
In response to these concerns, the ABA has developed a set of principles that its member banks agree are appropriate to take into account, and employ within the sophisticated systems used, when considering whether to approach a customer to offer a credit limit increase on a credit card.
These principles are in addition to the initiatives on credit card marketing announced in March 2004 and subsequently adopted by ABA member banks, and in addition to responsible lending standards included in the Code of Banking Practice.
1. Principles
In deciding whether to approach an existing cardholder to offer a credit limit increase and the size of such increase, where this has not been directly requested by the cardholder, the bank will take into account the wider banking relationship, where this is known to the bank, and take the following criteria into account:
- The cardholder’s recent credit card repayments history, including factors such as whether the cardholder has shown the ability to make repayments against the credit line, or whether the cardholder has a history of missed or late payments.
- The cardholder's income, including whether, in the course of dealing with the cardholder, the bank becomes aware that the cardholder is in receipt of a welfare payment that is the cardholder's sole source of income.
- The cardholder’s recent credit card history, including whether the cardholder has a history of consistently reaching or exceeding the credit card limit while making only the minimum monthly repayments, and/or whether the bank is aware of other information that suggests the cardholder may be likely to be experiencing financial stress.
- The cardholder’s broader relationship with the bank, including whether the cardholder is a new customer (eg, without a credit or repayment history) and/or whether the cardholder has acquired any other products from the bank.
When approaching an existing cardholder to offer a credit limit increase, banks will provide information on:
- the minimum monthly repayment if the offer is accepted and the credit card limit is fully drawn on;
- how to request a lower offer;
- how and when to reject the offer (eg, if the customer’s personal circumstances have changed); and
- easy and efficient ways to reduce the credit card limit.
Many of these principles already form part of the processes and procedures used by ABA member banks when considering whether to approach customers to offer bank initiated credit card limit increases. However, where they go beyond what is usual practice today, these principles will be incorporated into the banks’ standard processes and procedures as soon as practicable by all ABA member banks.
Banks understand that events occur in the lives of borrowers that neither they nor their lending bank could foresee. If the financial circumstances of a cardholder deteriorate, the ABA and its members encourage the cardholder to make contact with their bank. All banks have specific personnel and processes to help customers who are experiencing financial hardship and to assist them in overcoming their specific difficulties. Banks have made explicit provision in the Code of Banking Practice (clause 25.2) for customers experiencing financial difficulties with their bank credit facility.
For further information:
Heather Wellard
Director, Public Relations
Phone: 02 8298 0411
Mobile: 0409 830 439
ENDS