Monday, August 16, 2010

Don't believe the banks - Bankers Association

Letters from banks offering higher credit card limits are apparently not what they seem. According to the Bankers' Association they are "just a form of advertising".

As Prime Minister Gillard promised to outlaw such offers on reelection, her financial services spokesman Chris Bowen declared them "wrong, when you are in financial difficulty".

"Many people tell say to me when they are in difficulty they get these unsolicited credit extension offers saying, ‘We can increase your credit limit by $5000, he said yesterday. "It is very tempting, but it’s often not the right thing to do. We will change the law so you can only get credit extension offers if you sign up for them from the beginning."

But the Bankers Association believes there's no need. In fact it believes the Financial Services Minister has got hold of the wrong end of the stick.

"Credit card limit offers are just a form of advertising," the Association's chief executive Steven Münchenberg responded yesterday.

"It's advertising to customers whom banks believe might want greater flexibility with their existing credit limit."

According to Münchenberg an offer of a higher credit card limit does not actually mean credit limit will be instantly increased... "The customer must still fill in a form to accept the offer. This means the customer has to make a decision to apply for the credit card or accept the credit limit offer," he said.

Offer of increased limits were only made after the bank had assessed the performance of the customer with hjis or her credit card.

"Overall this is a more reliable basis of assessing credit worthiness than relying on information provided by the customer at the time the application for the card was made," he said.

"It is very important that policy proposals do not cause unintended consequences for customers."

Mr Münchenberg probably has little reason to worry. The fine print of the Labor proposals makes clear they will only apply to new credit cards and only after mid 2012.

Treasurer Wayne Swan said yesterday 150,000 new credit cards were issued each month suggesting three million more will be issued before the rule kicks in.

The National Australia Bank welcomed other Labor proposals including that customers not be charged over-the-limit fees unless they specifically agreed to allow their cards go over the limit.

Also from mid 2012 credit card providers would be required to allocate payments to the debts with the highest interest rate first.

All interest rate calculations would have to be done in the same way and accounts would have to detail the implications of making only minimum payments including how long it would take to repay the debt.

"We are targeting problems of community concern," said Prime Minister Gillard. "Lots of Australians would get a shock when they get their credit card bill and run up debts over what they think is their limit. Lots of Australians get a shock when they realise how quickly interest was going to escalate on their card."

And that's often because even though Australians seek to shop around, they don't have the ability at the moment to compare interest rates because they're not displayed on the same basis. Many Australians would have got a shock about how long it's taking them to pay off their credit card, not realising that their payments are being applied to the lowest interest part first, not the highest interest part, so the worst possible deal for them. So I want to step forward and better regulate, so Australians can better manage their finances with more information and more choice available."

Labor's credit card crackdown

. Unsolicited credit limit offers banned

. No over-the-limit fees without consent for over-the-limit transactions

. Repayments pay off highest interest rate debt first

. Changes to apply only to new credit cards

. Changes to apply after implementation, by mid 2012

"A better financial deal for hard working Australians" Australian Labor Party

Published in today's SMH and Age

Fairer Simpler Banking - Fact Sheet

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