New credit cards to have three year debt limits
CREDIT card customers will find it tougher to get plastic under drastic new changes that will force them to repay their debts in just three years.
From January 1 cardholders signing up to a new card must prove they can repay the total limit within this time frame.
Latest Reserve Bank of Australia data shows credit card limits hit a record high in April at $153.9 billion - on an average of about $9400 per card.
Under the changes implemented by the corporate regulator, the Australian Securities and Investments Commission, banks have less than four months to roll out the new rules.
Consumer groups believe the move is a huge win for credit card customers because it will lead to less people running into financial heartache by racking up mountains of debt.
Consumer Action Law Centre's senior policy holder Katherine Temple said "hopefully this will reduce the number of people only making minimum repayments and paying a lot of interest."
"It will make credit card lending more affordable," she said.
Credit card interest rates have remained stubbornly high at an average of 16.99 per cent and customers are only required to make a minimum repayment each month.
This equates to just two to three per cent of the card's total balance.
RBA statistics show Australians owe a massive $52.6 billon on credit cards and $33.1 billion is accruing interest.
Financial comparison website RateCity's spokeswoman Sally Tindall said the move to combat rising household debts is a "step in the right direction."
"While most people use their credit cards responsibly, credit card debt is a never-ending hamster wheel for thousands of Australians," she said.
"Giving people access to excessive credit limits was a central part of the problem."
The Financial Counselling Australia's chief executive officer, Fiona Guthrie, said the changes will mean fewer people will be trapped in debt.
But she said financial institutions should look to increase the monthly minimum repayments from the current two per cent required of cardholders.
She said this would help customers repay any money they owe sooner.
In 2019 institutions will also be banned from making unsolicited card limit increases to their customers in writing, by phone or online.
They must also provide an online option that allows customers to cancel their credit cards or amend their credit limits.