An investigation by the Australian Securities and Investments Commission (ASIC) into the use of credit cards in Australia has revealed that more than one in six users struggle to meet their card repayments.
The review, which covered 21.4 million credit card accounts open between July 2012 and June 2017, found that while cards offered flexibility, they could present a debt trap.
Deputy Chair of ASIC, Peter Kell said that in June 2017 there were almost 550,000 people in arrears, 930,000 with persistent debt and 435,000 people repeatedly repaying small amounts.
“Our findings confirm the risk that credit cards can cause financial difficulty for many Australian consumers,” Mr Kell said.
He said consumers were also being provided with credit cards that didn’t meet their needs.
“For instance, many consumers carry balances over time on high interest rate products, when lower-rate products would save them money,” Mr Kell said.
He said only a handful of credit providers took proactive steps to address persistent debt, low repayments or poorly suited products.
“There are a number of failures by lenders to act in the interests of consumers and we expect them to respond swiftly to our findings,” Mr Kell said.
“ASIC has commenced consulting on a new requirement that will strengthen responsible lending practices for credit cards.”
He said rules introduced in 2012 that require lenders to apply repayments against amounts accruing the highest interest first had helped reduce the interest charged on credit card debt.
Mr Kell said four lenders — Citi, Latitude, American Express and Macquarie — had retained old rules for grandfathered credit cards open before June 2012 and ASIC estimated that almost 525,000 consumers had paid more interest as a result.
“ASIC found that while these four credit providers are not breaking the law, they are charging their longstanding customers more interest than they should have been, and their conduct is out of step with the rest of the industry,” he said.
ASIC’s 82-page report can be accessed at this PS News link.
