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Australia flags debt trap, tightens credit rules

Bengaluru

THE Australian Securities and Investments Commission (Asic) said on Wednesday it plans to make banks issuing credit cards set credit limits at no higher than what the customer can afford to repay in three years, after a review found many consumers were ensnared in credit card debt.

Asic said it found that 18.5 per cent of consumers were struggling with credit card debt, adding that credit cards present a debt trap for more than one in six consumers.

The three-year repayment period proposal is to strike a balance between ensuring consumers have access to credit cards and preventing them from being unable to repay debt.

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"Our findings confirm the risk that credit cards can cause financial difficulty for many Australian consumers," said Asic deputy chair Peter Kell. Asic also estimates that almost 525,000 consumers have paid more interest as a result of Citi, Latitude, American Express and Macquarie retaining old rules for credit cards taken out before June 2012.

The new reform will apply to credit licencees providing credit or credit assistance in relation to both new and existing credit card contracts from Jan 1, 2019. REUTERS