Credit Card Reforms in Australia

December 21, 2011 by  Filed under: Credit 

For many years, credit card reforms in Australia have been long overdue. Thousands of consumers have fallen prey to the credit card trap, which creeps up on them while they are struggling to keep their family finances in check and make ends meet.

People go into this kind of debt for a multitude of reasons – some unfortunate people do it in desperation because they simply don’t have the funds to pay for their daily needs from the income they earn. For many, it’s one of the casualties of a relationship breakdown, or struggling with ill-health. Others do it because they have been lured by so-called wealth gurus who promise them riches if they will shell out a few thousand to attend one of their seminars. Then they need a few more thousand to invest in whatever it is they’ve been recommended and when it all goes belly-up, they’re deep in it. Then they need more card debt to meet now higher living costs and so the situation gradually spirals out of control.

Next thing you know, the card provider is charging them an over-limit fee – a nice little golden egg which is costing consumers $250 million a year. Let’s add higher interest rates on over-limit balances to that – another $170 million worth, according to a recent article in the Sunday Mail. Then when the consumer realizes that they will never be able to reduce their card balances and so stop paying, their debt is sold to a debt collection agency that proceeds to hunt them for contributions.

If they have some equity in their homes, they contact a debt consolidation organization who recommends that they consolidate all their credit card debt, plus their current mortgage, into one big loan. Now the overall deal is not as favourable as the original mortgage was. Just like that, their mortgage repayments effectively double.

Where did this situation begin? News headlines for a number of years have focused on the problem with increased credit limits being too easy to obtain. Card holders are offered special introductory deals to increase their card limits, which are too good to refuse – and even more tempting if you’re struggling with cash flow issues and Christmas or some other ‘spending time’ is approaching. You only need this happening with a few different cards and it won’t be long until you’re in way over your head.

The introduction of credit card reforms in Australia are planned by the government. Bans on over-limit fees are proposed for introduction in 2012 unless the consume specifically agrees that the lender charge a fee. Credit card providers will also be directed to direct repayments to the most expensive part of a customer’s credit card debt first, with a view to reducing overall debt faster.

The Commonwealth, Westpac, National and ANZ bank have 42 of the most popular credit cards between them, which account for about 80 per cent of the market. Many people can’t imagine life without a credit card. The freedom to spend more than you have, with the lure of frequent flyer points or other reward bonuses, is often too exciting to pass up. Credit card reforms in Australia are not going to solve this problem, but they are at least a token acknowledgement that it needs to be addressed.

Miriam is an Australian specialist consultant for bad credit repair and has assisted hundreds of people who need help with debt problems.

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