Will Australia's new credit card reforms work?
By Vanessa Tripodi
Credit Card Issuers charge a number of fees that seem unfair, especially when you are the one who has to pay them. In 2010, a new Australian consumer protection law was passed by Parliament to offer greater protection from unfair fees. The Trade Practices Amendment (Australian Consumer Law) Act 2010 will simplify the current consumer protection laws by replacing 17 commonwealth, state and territory laws that cover unfair contract conditions. The new consumer protection law will also give new powers to the Australian Securities and Investments Commission and the Australian Competition and Consumer Commission, as well as introduce harsher penalties for contract conditions that are deemed unfair.
However, legal experts are warning that the new laws will not stop credit card companies from imposing unfair fees and interest calculations. This is because a new fee or charge must fail a fairness test before it can be successfully challenged. The reformed national law comes into effect on 1 Jan., 2011, but Nicole Rich, director of policy and campaigns at the Consumer Action Law Centre, believes the law is unclear about what can be challenged as unfair, and that raising credit card fees is "a surrogate for raising the interest rate."
Similarly, Katherine Lane, principal solicitor at the Consumer Credit Legal Centre, has pointed out that the default fees were often more debilitating than the interest charges, and that, "In Britain, they don't have over-the-limit fees -- they banned them on the basis they are unfair."
At the same time, the head of the Australian Bankers Association, Steven Munchenberg, has defended the right of Australian banks to charge interest on interest. He points out that banks pay us compounding interest on our savings and investment accounts; all Westpac is doing is taking the same approach to its credit customers.
An unfair contract term will be judged on whether it causes a significant imbalance between the parties, is not reasonably necessary, or causes either financial or non-financial detriment. In determining whether a term is unfair, the courts will consider the transparency of the language used to convey the term and the contract as a whole. An unfair term may be one that allows one party, but not the other, to avoid or limit the performance, terminate, vary the terms or renew or not renew the contract, change the characteristics of the goods or services to be provided, or unilaterally determine whether the contract has been breached.
The new consumer laws aim to protect banking and financial customers but have not been extended to managed investments such as superannuation. The law also still requires Australians to do their due diligence in choosing and comparing credit cards and financial products to ensure the conditions of contracts are fair for their individual circumstances, too.
Article by Vanessa Tripodi