A review into credit card lending in Australia has found that one in six Australians are struggling with credit card debt.
The Australian Securities and Investments Commission (ASIC) made the finding after reviewing over 20 million credit card accounts open between July 2012 and June 2017.
The report shows that in June 2017 there were almost 550,000 people in arrears, another 930,000 with persistent debt, and an additional 435,000 people repeatedly repaying small amounts.
ASIC Deputy Chair Peter Kell said many consumers were being provided with credit cards that don’t meet their needs. For instance, many consumers carry balances over time on high interest rates, when lower-rate products would save them money. ASIC estimates that these consumers could have saved approximately $621 million in interest in 2016–17 if their card had a lower interest rate.
Mr Kell added that “only a handful of credit providers take proactive steps to address persistent debt, low repayments or poorly suited products”. ASIC expects the providers to “respond swiftly”, and will follow this up to ensure the problems ASIC identified are addressed.
As of June 2017 there were 14 million open credit card accounts, an increase of over 300,000 since 2012. Outstanding balances totalled almost $45 billion, with approximately $31.7 billion in balances on credit cards that were incurring interest charges. Consumers were charged about $1.5 billion in fees in this period.
In March this year, the Government implemented the first phase of reforms in response to a Senate Inquiry into the Australian credit card market, which reported in December 2015. These reforms will help prevent problem credit card debt by ensuring that credit providers assess a consumer's ability to repay a credit card limit over a period prescribed by ASIC, banning unsolicited credit limit increase invitations, and making it easier for consumers to cancel credit cards.
ASIC has issued a consultation paper proposing responsible lending assessments for credit cards, based on whether the consumer can afford to repay the credit limit within three years.
Consumers can also use MoneySmart's credit card calculator to work out the fastest way to pay off their card and how much they can save by paying it off sooner. The calculator can be found at www.moneysmart.gov.au.