The Government credit card reforms which came into force on July 1, 2012, essentially make it their goal to ensure that card holders do not overspend or overextend the power of their buck. Starting with the first of the month, bank customers need to agree with receiving offers for increasing their credit limit, while banks can no longer send out such offers which have not been specifically approved by the client.
With credit card debt having climbed to unprecedented heights over the past years, these measures seem logical and sound, yet Australia’s ‘big four’ seem to be responding with urgency, anxiety and a fair amount of panic to the reforms. While most banking experts and managers agree that the reforms will impact the way in which banks in Australia do business, it is still too early to tell what the force of that impact will be, or how exactly it will become manifest.
Bankwest representatives have been quoted as saying that, of the country’s four major banks, the ANZ had, indeed contacted some of their clients, which qualified for credit increases, to inform them of the reform. Said clients were also informed of how the reform would affect their daily banking habits. This measure, together with the bank’s marketing campaigns, which ran in parallel, qualifies as one of the milder, more subtle ones undertaken over the past few months. Other institutions sent text messages, messages via the customers’ online banking accounts or letters via post, to inform them of the changes they were facing.
According to certain experts quoted by News.com.au, prior to the enforcement of the credit card reforms, the total estimate on bank revenue from fees applied to increasing the credit limit totaled a whopping $1 billion. What is more, over the eight months elapsed from October, 2011, to July 2012, these fees were increased on no fewer than nine credit cards for personal use. It is acceptable to surmise that these reforms were, at least in part, prompted by such scandals as the one that erupted last December.
It was then that the Australian Securities and Investment (ASIC), the country’s first banking institution regulator, discovered misleading practices enforced by one of the ‘big four’. According to ABC.net.au, the ASIC learned that the Commonwealth Bank had been churning out post invitations to customers, urging them to agree with receiving credit limit increase offers. Since this was going on prior to the reforms coming into force, it was not illegal—yet the bank letter was also suggesting that, should they not agree, customers would be permanently losing their right to increase their limit. The Commonwealth Bank released a statement shortly before July 1, in which it expressed their agreement to comply with the Government reforms, which aimed at sounder lending practices.
The recently enforced reform aims to put a cap on mindless spending, which, in turn leads to debt. To a certain extent, it hands the power of decision back to the credit card holder. And while this will definitely entail changes in the way we do our day-to-day banking, it will also enable many to limit their debt. Credit is one of the driving forces of a sound economy, as recently underlined by Financial Services Minister Bill Shorten, in a statement regarding discriminatory lending practices.
While the general population needs and should be granted equal access to loans, too much of a good thing can turn into a bad situation. In brief, the card holder is now being encouraged to take more responsibility of how much they can borrow—and it will be very interesting to watch the changes in economic landscape that this brings on over the coming months.