Stream One: Empower consumers to get a better deal

Fast-track legislation to get a better deal for Australians with credit cards

The Gillard Government will build on its new national responsible lending reforms by fast-tracking our election commitment to crack down on unfair treatment of Australians with credit cards to give consumers more control over the amount they borrow and stamp out lender practices which currently see them pay more interest than they should.

The Government has overhauled our consumer laws in the past two years. The commencement of the Australian Consumer Law marks the first time in 100 years that Australians have had a uniform consumer law across all states and territories which strengthens protections for them across every sector of our economy, including credit. The new National Credit Code introduced ‑ for the first time — a national consumer credit law with tough new protections for consumers.

The Government will now fast-track reforms through the National Credit Code to increase fairness and consistency in the way fees and interest are charged on credit cards, to give consumers more say over how they use their credit cards and to help them better understand what they are signing up to.

The Treasury will now accelerate its industry and consumer consultations to allow the relevant legislative amendments to be introduced in the first sitting of Parliament in 2011.

Forming part of the Government's national credit regime, these tough new laws will save Australian cardholders money by forcing credit card lenders to allocate repayments to higher interest debts first:

  • For example, the Johnson family may have a credit card balance of $5,000, consisting of a $2,500 'balance transfer' from a previous lender on which they are now paying interest at a special rate of 1.9% per annum, and another $2,500 which they have spent using a credit card from their new lender on which they are paying interest at 19.9% per annum.
  • If the Johnson family were able to make a $2,000 payment towards their credit card balance, most lenders would seek to use this to pay off $2,000 of the debt which is only costing 1.9% per annum. The Government will legislate to ensure that the lender must instead use the $2,000 to pay down some of the debt on which interest is owed at the much higher rate of 19.9%, saving the Johnson family around $360 a year.

The Government's new credit card reforms will also:

  • Prevent lenders from charging over-limit fees unless consumers specifically agree that their account can go over the limit.
  • Ban unsolicited credit limit extension offers unless pre-agreed to by the consumer.
  • Ensure all interest charges are applied consistently under an industry-agreed standard, including when interest starts to accrue and on what balances.
  • Make sure lenders give consumers more say over nominating their own credit limit.
  • Make it mandatory for credit card application forms to include a clear summary of key account features.
  • Require lenders to inform consumers about the implications of only paying minimum repayment amounts on their statements.

The objective here is clear — a credit card market that is transparent, competes hard for every consumer dollar, and has built-in protections to help stop Australians falling into a credit card debt trap.