Sydney, 28 September, 2006: The Australian Bankers’ Association (ABA) said the Victorian Government has taken a sensible approach in its response to issues related to consumer credit.
In February 2006, the Chair of the Consumer Credit Review, James Merlino MP, and Consumer Affairs Victoria completed the Report of the Consumer Credit Review. The report contained a series of options on which the Victorian Government has today responded in its report the Government Response to the Report of the Consumer Credit Review.
David Bell, Chief Executive of the ABA, said: “The Victorian Government has listened to some of the concerns of industry with the promise of further consultation and analysis. We are reassured that the State Government is committed to find national solutions where possible.”
“We also are pleased that the State Government plans to undertake regulatory impact statements – this gives greater comfort to the industry that any problem will be properly identified and will be addressed in an appropriate and proportionate way – and not necessarily in all cases with regulation.”
Summary of ABA response to initiatives
- Unsolicited credit card limit increases
The Victorian Government thinks that customers should be able to positively elect the credit limit which they require. The ABA voluntary initiatives, announced in March 2004, offer the following:
• Individuals can decline the credit card limit offer; and
• the offer will explain they can opt for a lower credit card credit limit than the increase their bank has offered. For example, a customer can opt for a $1000 limit increase in preference to the $2000 limit increase offered;
• banks have also facilitated customers’ ability to decrease their existing limit by contacting their banks.
- Capacity to repay
The Victorian Government notes that further work is needed to determine whether there should be an obligation to consider the impact on borrowers when credit is extended. The ABA supports further work on this issue and has taken the initiative of proposing best practice principles (see over Notes for Editors) 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 have been provided by the ABA to the Ministerial Council on Consumer Affairs (MCCA) for its consideration.
- Warnings on credit card statements
The Victorian Government is supportive of putting a proposal through the Ministerial Council on Consumer Affairs so that credit providers when making provisional offers to increase credit card limit offers give consumers details of: minimum repayment if limit fully drawn, minimum repayment if limit is increased to amount in provisional offer, time it would take to repay the current limit if fully drawn, time it would take to repay proposed limit if fully drawn based on provisional offer. The ABA will continue consultation on this issue. The ABA sees scope for the State Government to develop a calculator to allow credit card customers to calculate how much they would have to pay each month to reduce their credit card balance over a time period of their choosing. This approach is consistent with Government and industry financial literacy initiatives. A calculator such as this would assist consumers to understand the impact of credit on their household budgets.
Notes for Editors:
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:
1. 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.
2. 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.
3. 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.
4. The cardholder’s broader relationship with the bank, including whether the cardholder is a new customer (e.g. 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 (e.g. 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