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Australian corporate regulator flags debt trap, tightens credit card rules
[BENGALURU] The Australian Securities and Investments Commission (ASIC) said on Wednesday it plans to make banks issuing credit cards to set credit limits at no higher than 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.
ASIC proposes a three-year repayment period to strike a balance between ensuring consumers have reasonable access to credit cards and preventing them from being unable to repay debt.
"Our findings confirm the risk that credit cards can cause financial difficulty for many Australian consumers," ASIC Deputy Chair Peter Kell said in a statement.
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 grandfathered credit cards taken out before June 2012.
The proposal comes after an enquiry into financial misconduct in the country in March found that Australia's top banks routinely and repeatedly breached laws when issuing home loans, credit cards and other consumer loans.
The new reform will apply to credit licensees providing credit or credit assistance in relation to both new and existing credit card contracts from Jan 1, 2019.