Aussie Credit Card Reforms

The recent credit card reforms, enforced starting July 1, have stirred up quite the debate on the matter, with analysts and experts rushing to argue whether or not the reforms are actually beneficial for the end-user. However, the habits, debts and expenditure afforded by that very end-user are causing an extended discussion of their own.

Where does the truth lie? Is Australia really sinking under credit card debt? Are the new reforms going to spell a slow, yet certain and agonizing death for plastic? Or is the state of the nation’s money far more positive than we imagine—and simply suffering at the hands of global recession-induced cries of panic?

Increased Credit Card Transparency

At a first glance, the increased credit card transparency that these reforms will bring about, according to Steven Munchenberg of the Australian Bankers’ Association, among others, will entail more verticality from banks, who won’t simply be able to hike up credit card interest rates. Meanwhile, the latest figures from Roy Morgan Research paint a rather bleak picture, as they indicate a massive amount of credit card debt ($37.1 billion, with an average interest rate charged of $4,582 per card holder). On the other hand, the famous and somewhat controversial report on Australia’s income and spending habits, released in May by The National Centre for Social and Economic Modeling states that Australians are far better off than it is believed. According to this report, the average income per household per week has risen to an approximate $224, the highest level attained over the past six years.

What does this all mean, when it comes to credit cards? On the one hand, it is important to also factor in the fact that interest rates on credit cards have maintained their fairly constant level of 20 per cent, and have not dropped at the same pace with the cash rate. There have been some noticeable exceptions to this rule of course, with some banks putting forward a low interest credit card offering. It is only logical to surmise that banks, which still need to make money from their debtors, will find loopholes in the newly-enforced system and will simply have to come up with more novel ways to make money. Some fear that this might lead to yet another fallout in terms of credit card debt, similar to the one reported by the Sydney Morning Herald in 2011. That was the year which saw debt hitting the unprecedented (and rather daunting) threshold of $50 billion.

More reassuring news is coming from the front of analysts commenting from the sidelines of the industry. In their view, the reforms and the decreased interest displayed by the population in taking out credit cards, which said reforms caused, are in no way, shape or form, sufficient justification for yet another increase in interest rate. While Australia’s four major banks continue to dictate on the market and ‘call the shots’ in more ways than one, the reforms will certainly increase the sense of competition in the world of credit cards. As such, banks will no longer be able to impinge on consumers and simply make them accept modifications to the terms of their credit card contracts. This, in turn, leads to a fairly positive situation for the clients, who now have the perfect window of opportunity to find a better deal. If anything, most voices in the field agree, this is the time when you need to take out your credit card contract, review it and go shopping around for a better deal; one that is better suited to your spending profile, your needs and your goals. The reforms may not be able to hold back interest rates indefinitely, but they are, indeed, returning some power to the consumer. Compare Credit Cards here

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