The Government released a second Green Paper in July 2010 and the Amendment Act was enacted in July 2011. The Amendment Act sections dealing with credit cards were informed by the Ministerial Council on Consumer Affairs’ (MCCA) 2008 Regulatory Impact Statement (‘RIS’) on responsible lending practices and credit cards. The focus of the RIS was those lending practices and current regulatory failures that contribute to financial hardship of vulnerable consumers. The RIS drew extensively on the reports and evidence of consumer groups and community organisations and used behavioural economics and recent surveys of financial literacy to support its proposals for reform.

The Amendment Act requires that Key Fact Sheets (Key Fact Sheets)48 are to be included for all new credit contracts.

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However, Regulation 28JA states that a lender must ‘make reasonable inquiries about the maximum

credit limit that a consumer requires’.49 The Amendment Act responded to option 3 by banning lenders

from issuing written credit limit increase invitations50 except where a consumer has consented.51 The

Amendment Act also requires that lenders notify consumers when they have exceeded their credit

limit52 and provide warnings about the consequences of minimum repayments, implementing option 5.

The reforms do not explicitly adopt option 3, but it is arguable that the ban on lenders offering credit

limit increases unless the consumer has consented to receiving the offer and Key Fact Sheet disclosure

requirements may address this issue by providing clearer information to consumers. Options 4 and 6

were not implemented.53

The following analysis of the new Regulations and the Amendment Act demonstrate how the reforms

address behavioural biases. The ban on credit limit increase invitations except with the consent of the

consumer addresses the optimism bias. Regulation 28LH gives further guidance to s 133BE(5) of the

Credit Act, which bans written offers for credit limit increases except with the consent of the consumer.

Written communication from a lender to a customer is banned if it includes an increase higher than the

existing credit limit or a suggestion that a higher credit limit may be beneficial.54

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Regulation 28LFA requires lenders to provide a Key Fact Sheets at the time an application for a credit card is made

by a consumer. The Key Fact Sheets must be contained on the application form itself, or given to the consumer on a

separate piece of paper with the application and the lender cannot merely refer to a website. Critically,

credit card fees, charges and interest rates are unbundled with the specification of a plain language,

large font table that separates fees, interest rates, minimum repayments and other charges. This

‘unbundling’ of fees and charges addresses the optimism bias by separating the short term low costs

(teaser fees and introductory rates) from longer term interest rates applying to balances. The timing of

disclosure occurs before the contract is signed, which may alter behaviour by prompting the consumer

to assess realistically their capacity to repay.

Regulation 28LJ requires lenders to take reasonable steps to notify consumers within two business days

if a card is used in excess of the credit limit. The Amendment Act also prohibits the lender imposing fees

or charges for use in excess of the credit limit.55 The warnings address poor self control at a critical time,

providing targeted disclosure to the consumer that will alert them to behaviour that can lead to financial

hardship because the limit is exceeded.

Lenders must also include a warning on monthly statements. Regulation 79B states that this warning

must appear on the front page of a credit card statement and set out:

1. The amount of time it will take to discharge the closing balance if only minimum repayments are

made at the current rate of interest

2. An alternative monthly payment amount that would allow the balance to be extinguished in two

years at the current rate of interest

3. The difference in the total repayment amount between repayment options (1) and (2)

Treasury Exposure Draft ‐ National Consumer Credit Protection Amendment (Enhancements) Bill 2011 and Draft

Credit Card regulations (17 August 2011) 2‐3.

55 National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Act 2011 (Cth) Div 5, s 133BI.