Government targets credit cards
(22 March 2010 – Australia) The Federal Government has credit cards in its sight, with plans to include them in previously announced proposals that increase the disclosure rules on mortgages.
The proposed reforms include forcing banks to provide such details about card repayments as the amount of interest to be repaid and how long it would take a cardholder to pay back a balance if the minimum monthly payment were made.
It follows other planned rules for credit cards, including bans on over-the-limit fees and preventing cardholders from exceeding credit limits by more than 10 per cent. Those proposals drew fierce resistance from the banks and threatened to close a lucrative earnings stream - over-the-limit fees run into hundreds of millions of dollars a year.
The draft disclosure rules, published by Treasury, would require banks to provide a disclosure document to consumers before they signed up for a credit card.
As well as setting out interest rates and additional fees, the disclosures would warn cardholders how long it would take to pay down the credit card debt using the minimum monthly repayment schedule if the credit limit had been reached.
The changes would also bolster disclosure around mortgages, forcing banks to spell out the total value of the loan that borrowers would repay over the life of a mortgage as well as the value of annual payments and any fees.
For the first time banks would also be forced to break down total repayments measured against every dollar borrowed. That is, a $300,000 loan at standard interest rates would translate to repayments of $2.48 over the life of the mortgage for every $1 borrowed.
Another proposal that is expected to meet resistance from banks would require lenders to spell out by how much loan repayments would increase if interest rates rose by one percentage point.
Banks will have a week to respond to the proposals.
Treasury said in a statement that no decision had been made on implementing the changes.
It follows other planned rules for credit cards, including bans on over-the-limit fees and preventing cardholders from exceeding credit limits by more than 10 per cent. Those proposals drew fierce resistance from the banks and threatened to close a lucrative earnings stream - over-the-limit fees run into hundreds of millions of dollars a year.
The draft disclosure rules, published by Treasury, would require banks to provide a disclosure document to consumers before they signed up for a credit card.
As well as setting out interest rates and additional fees, the disclosures would warn cardholders how long it would take to pay down the credit card debt using the minimum monthly repayment schedule if the credit limit had been reached.
The changes would also bolster disclosure around mortgages, forcing banks to spell out the total value of the loan that borrowers would repay over the life of a mortgage as well as the value of annual payments and any fees.
For the first time banks would also be forced to break down total repayments measured against every dollar borrowed. That is, a $300,000 loan at standard interest rates would translate to repayments of $2.48 over the life of the mortgage for every $1 borrowed.
Another proposal that is expected to meet resistance from banks would require lenders to spell out by how much loan repayments would increase if interest rates rose by one percentage point.
Banks will have a week to respond to the proposals.
Treasury said in a statement that no decision had been made on implementing the changes.
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