Credit Card Amendments

Phase two of the Federal government’s reform of the credit industry in Australia, which commenced in 2008 with the COAG initiative for the NCCP Act, is now being rolled out.
The treasurer has released the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011.

As the name suggests the bill deals with standard home loans and credit cards. 
It introduces new strictures and requirements for credit card issuers which we discuss below.

Credit card contracts

Issuers of credit cards will now be required to make disclosure of key facts and comply with new strictures on how they deal with debits that take consumers over their credit limit.
What, then, is a credit card contract?

It is a credit contract that, through the use of a credit card permits a consumer to access multiple advances of credit where the amount of available credit ordinarily increases as the amount of credit is reduced. 

A credit card may be a card that we all commonly know as a credit card or anything else that may be used in a similar fashion.  In this way the bill is technology neutral and contemplates near field communications devices and other wireless technology such as mobile phones.

Key facts sheet

So lenders who offer such credit cards will be required, from 1 July 2012, to provide a document which contains the information and complies with the requirements prescribed by the regulations.  The form of the Key Facts Sheet will also be prescribed by regulation.  We have not yet seen the regulations.

The document is intended to summarise key facts about a credit card contracts.  It is envisaged, according to the explanatory memorandum, that some of those key facts will include:

• Minimum repayments required to be made under the contract
• The annual percentage rate or rates that may apply, and
• Fees

Credit providers must not enter into a credit card contract unless the application is made using an application form that includes an up to date Key Facts Sheet, or if it is out dated, an updated one has been provided or the consumer has been told how to access one.

Restriction on offers to increase credit limits

The bill provides that lenders cannot make an unsolicited invitation to apply to increase credit limits, except where they have the express consent of the consumer to do so.

Use of credit in excess of the credit limit

The bill seeks to regulate the circumstances in which credit card users can exceed the credit limit on their card. 

The primary obligation of the credit provider is to not approve the use of a card in excess of the credit limit, or the default buffer of any other buffer that may apply.

It also prohibits fees being charged when they do so, except where the consumer has specifically opted to have a higher buffer where they can be charged fees.

Allocation of payments to credit cards

Credit providers will be required to allocate payments to that part of the balance on a credit card account which is being charged the highest interest rate.  This, however, is subject to the consumer specifically electing to have a different payment arrangement with the lender.

Foreshadowed changes

The government has foreshadowed that further regulation may also be coming through the promulgation of future regulations.  The regulation making power under the NCCP Act is being broadened to deal with the day from when interest may be calculated under “interest free days” contracts.

Further, specific provision is made for the imposition of penalties through the regulations.  The explanatory memorandum states that “these reforms are intended to provide greater consistency between different credit card products.  This will allow consumers to make more efficient choice in product selection and ensure that differences in the operation of competing products can no longer continue.” 

In other words, less product differentiation is good.

Next steps

Lenders issuing credit cards should review their systems, procedures and lending documents to ensure they will be ready for the commencement of these amendments.

Donovan Oates Hannaford, Lawyers is ready to assist.

Please contact Hadyn Oriti should you require any further information.
Hadyn Oriti
March 2011
P: +61 2 6583 0449
E: horiti@dohlaw.com.au