The Federal Government’s National Consumer Credit Protection (NCCP) Act is now in force. Reforms put into place as of 1 July 2012 centre largely on giving consumers the ability to switch transaction accounts from bank to bank in a more streamlined, less stressful fashion and tackling key issues of contention within the credit card area.
Let’s focus on credit cards. The main problem area has been the allocation of payments, particularly in the case of balance transfer offers. In the past, things went awry when consumers used the card to make purchases before the older debt was paid off in full. Repayments were then directed towards the lower balance transfer promotional rate, leaving the new debt to accumulate higher interest. This negated the very reason for a balance transfer and many consumers were caught out with a bigger debt than when they started.
However, the reforms apply to “new” and “existing” credit card accounts but the trick for consumers is to avoid getting caught in the middle by being clear on the application of the reforms. If you are not sure, your bank will always clarify things for you but in a nutshell, the credit card reforms are as follows:
New credit card applicants:
- “Key facts sheets” with a standardised layout of important information to be provided
- More control over your credit limit, including the ability to nominate your own limit during the application process.
- No fees for exceeding your credit limit unless you agree to them in advance with your lender.
- Notification whenever you exceed your credit limit in order to assess whether you want to keep using the card or make a payment.
- Your repayments will automatically go towards the highest-interest components of your credit card debt, helping you to reduce your debt in a more timely manner.
This last point is especially important for those who use balance transfers between credit cards to take advantage of low introductory rates, as it prevents you from unknowingly accumulating added debt.
However, these reforms do not affect existing credit card contracts – only new ones. The reforms applicable to new and existing credit card contracts are as follows:
All credit card holders:
- No more offers to have your credit limit automatically increased unless you explicitly agree to receive them.
- Your monthly billing statement to include additional useful information, like how long it would take you to pay off your entire balance if you only make the monthly minimum repayment.
- A clearer picture from card providers about how their interest-free periods work.
Together, these reforms are intended to enable credit card users to make more informed, responsible decisions. At the end of the day, however, it will still be up to you to monitor your statements to ensure your credit card is functioning in the way that works best for you.
Article updated 02/07/2012
