Consumer Action Law Centre Level 7, 459 Little Collins Street Telephone 03 9670 5088 info@consumeraction.org.au Melbourne Victoria 3000 Facsimile 03 9629 6898 www.consumeraction.org.au ABN 37 120 056 484 ACN 120 056 484

10 August 2015

By email: economics.sen@aph.gov.au

Senate Standing Committees on Economics PO Box 6100 Parliament House Canberra ACT 2600

Dear Committee Members

Matters relating to credit card interest rates

The Consumer Action Law Centre (Consumer Action) and the Financial Rights Legal Centre (Financial Rights) welcome the opportunity to provide a submission to the inquiry into credit card interest rates.

Overall, we are concerned by the increasing levels of credit card debt in Australia, and the impact this indebtedness is having on consumers.

Briefly, our submission address the following:

 levels of credit card debt;

 the impact of credit card indebtedness;

 the impact of previous credit card reform;

 barriers to switching credit cards;

credit card marketing;

 credit card disclosure;

 responsible lending;

minimum monthly repayments;

 value of loyalty programs; and

credit card transaction costs.

Our comments are detailed more fully below.

1. Summary of recommendations

Recommendation 1

Increase funding for the promotion and delivery of financial counselling and support services to assist those struggling with credit card debt.

Recommendation 2

Enable consumers to instruct their bank to cancel direct debits from credit cards, as they can with a transaction account direct debit authority.

Recommendation 3

Card providers be compelled to offer consumers simple online options to cancel credit cards.

Recommendation 4

Require credit card providers to inform consumers when switching that all direct debits will be transferred to their new card. We also suggest a broader consumer education campaign that improves understanding of how switching works.

Recommendation 5

Require credit card providers to provide consumers with a list of recurrent payments on their credit card annually or bi-annually to encourage consumers to review their direct debits.

Recommendation 6

Consider implementing 'account number portability', which could make switching credit cards simpler and easier for customers by allowing them to change banking service providers without changing their bank account or credit card number.

Recommendation 7

Require a minimum 'free' balance transfer period of two years, which must include new purchases.

Recommendation 8

Require low annual fees and interest free periods to be extended to two years.

Recommendation 9

Require credit card providers to set the minimum repayment amount for balance transfers and other 'teaser offers' on the basis that the consumer will repay the transferred balance within the 'teaser' period. In the alternative, there should be restrictions on using the card for new purchases until the transferred debt is repaid.

Recommendation 10

Require credit card providers to include a comparison of the cost of a consumer's current credit card versus the cost of the provider's lowest rate card in a monthly statement.

Recommendation 11

Credit card disclosure generally move towards a 'product use' model, whereby disclosure of credit card costs is based on a consumer's actual transaction history.

Recommendation 12

Ensure that consumer testing of credit card disclosures is undertaken prior to implementation of any proposed credit card disclosure reforms.

Recommendation 13

Require assessments of suitability for credit cards to be based on whether the consumer can afford to repay the full credit limit within three years without suffering significant financial hardship (subject to Recommendation 9).

Recommendation 14

Require credit card providers to ask consumers what credit limit they are seeking, and not offer limits in excess of that suggested by the consumer.

Recommendation 15

Consider increasing minimum monthly repayments for new cardholders, and 'nudging' current cardholders to repay more than their minimum monthly repayments if possible, by messages on statements about the benefits of higher repayment amounts.

Recommendation 16

Consider ways to reduce cross-subsidisation in the credit card market, including individualised disclosure that demonstrates how much is required to be spent on the credit card in order to earn a certain value of rewards.

Recommendation 17

A regulator, preferably the Australian Securities and Investments Commission or Australian Competition and Consumer Commission, be given responsibility for enforcing payment surcharging rules.

Recommendation 18

Require payment surcharge amounts to be prominently disclosed to consumers early in the process of a transaction.

Recommendation 19

Lower interchange fee caps to increase payments system efficiency and lower product prices for consumers.