Credit Card Reform in Australia

Credit card reform has now been enacted in Australia as part of the new National Consumer Credit Protection Act NCCP (Cwth). The important amendments to the legislation are as follows, it is essential you understand your Bank or Financial Institution's obligations. These changes come into effect from 1 July 2012.

1. Unless you agree they can no longer send you "automatic credit limit increases".
2. Unlike current industry practice, all payments made to the account must be allocated to the higher interest components of your credit card account first. If applicable, they are then applied to other balances associated with the card that have lower interest rates. The effect will be many organisations removing "low interest" offers for balance transfers. Many of these had been predicated on consumers spending on these cards with payments and thus interest being allocated to low interest offers first.
   
3. Buffers on credit cards are now limited to 10% of the balance, UNLESS the consumer decides not have a buffer. If a balance is exceeded, banks can no longer charge a fee or differential interest rate, unless either a buffer or supplemantary buffer is agreed between the parties.
   
4. The NCCP also requires the credit provider to notify the card holder if a credit limit has been increased.
   

Many of the changes reflect the almost totally electronic nature of the credit card transaction. Buffers in many cases were introduced when zip zap machines (remember them) were used and paper vouchers might take a few days to be processed. These days are gone.

The fees charged for being over your limit ranged between $20 and $40 dollars. According to Lisa Grey at nab on December 4 2009, nab has 750,000 customers benefitting from this change. If each customer only had one over the limit fee imposed in a year this equated to $18.7m straight to the bottom line for nab. Extrapolated over the "big four", it equates to $75m.

Banks benefitted enormously from the changes, not only being able to remove staff from the incredibily labour intensive voucher processing, they were also able to continue to receive more in fees with less cost.

This legislation finally evens the ledger providing far more certainly and protection for consumers.