ASIC launches ‘voluntary’ crackdown on banks mis-selling credit cards
The corporate regulator says the big banks have pledged to crack down on the mis-selling of credit cards, following damning evidence of their misconduct at the banking royal commission.
- ASIC says 18.5pc of credit card users are struggling with debt
- Around 500 million people were in arrears on their credit card in mid-2017
- Banks have given non-binding commitments to crack down on credit card misselling
However, these “commitments” are voluntary — in other words, they cannot be legally enforced.
Nine out of 10 lenders have agreed to take “proactive steps” to help consumers who cannot pay off their credit cards, the Australian Securities & Investments Commission (ASIC) said in its latest report.
The regulator also said they will minimise the extra credit given to customers who regularly exceed their credit limit.
But only four of the country’s 10 biggest lenders agreed to take a “fairer approach” to balance transfers.
For the purpose of its new report, ASIC consulted the largest lenders — American Express, ANZ, Bendigo and Adelaide Bank, Citigroup, Commonwealth Bank, HSBC, Latitude, Macquarie Bank, National Australia Bank and Westpac.
ASIC said it will monitor the changes and carry out another review in two years, despite the non-binding commitment from the banks.
“Although these commitments are not required by the law, they are important in ensuring that the credit card market works for consumers, including vulnerable consumers,” the regulator said in a statement.
Persistent debt problem
A review by ASIC of 21.4 million credit card accounts six months ago found that 18.5 per cent of customers are struggling with credit card debt.
In June 2017, there were around half a million people in arrears on their credit card and nearly 1 million had persistent debt.
ASIC also found that 400,000 people were repeatedly repaying small amounts, which means it could take years to pay off the debt.
Research from CommSec shows that the average credit card balance fell by just 20 cents to $3,220.86 in October.
ASIC said many credit card providers are trialling measures — including tailored communications to customers and structured payment arrangements — to help customers who are having problems paying off their bill or balance transfer.
Some lenders are also allowing interest-free periods on new purchases and increasing information about how to cancel old credit cards.
Who’s the fairest of them all?
Macquarie, CBA and HSBC have improved their credit card policies the most, compared to the other lenders, according to the regulator.
It also said American Express has promised to make some changes, but other lenders have “proposed more comprehensive measures”.
American Express made no commitment to restrict credit limits on cards, nor to take a “fairer approach” to balance transfers, although it was considering it.
“American Express does not agree with aspects of the ASIC report, and we will be discussing the matter in more detail with the regulator,” the company said in a statement.
CBA is repaying $45 million to around 150,000 customers for mis-selling credit card and loan protection insurance to people who were not eligible to claim on it — including unemployed people, students and pensioners.
ASIC ranks the banks on the extent to which they are addressing lending issues. (Supplied: ASIC)
A further 374,000 people may be owed compensation by the bank. These customers were sold insurance despite being under the age of 25 with no dependents.
CBA stopped selling credit card and personal loan insurance earlier in the year.
During the royal commission, CBA boss Matt Comyn blamed the sales of the products on his predecessor and former boss, Ian Narev.
Mr Comyn said when he raised concerns in 2015 about the insurance products, he was told by Mr Narev to “temper your sense of justice”.
Mother of two Irene Savidis was sold credit card insurance by CBA, even though she was not eligible to claim on the policy because she was not working.
The Consumer Action Law Centre told the royal commission that the banking industry may have to refund more than $1 billion for “junk” credit card insurance.
Compensation for bank customers in the United Kingdom for similar products, called “payment protection insurance”, totalled about $70 billion.
Crackdown over the next two years
The Federal Government has banned unsolicited credit limit increases and made it easier for consumers to cancel credit cards.
ASIC Commissioner Sean Hughes said the regulator will crack down on lenders if they do not improve their credit card lending.
“ASIC expects that all credit card lenders will address the issues raised in our review,” he said.
“We will be monitoring lenders over the next two years to make sure they have taken action to address our concerns and to ensure that that consumer outcomes are improving in the credit card market.”
The report said that ASIC expects all credit providers to tackle the problems facing credit card customers.
The regulator has also threatened further action, including the use of its new product intervention powers.