Excessive Credit Use: Now The Biggest Cause Of Insolvency In Australia

New data from the Australian Financial Security Authority (AFSA) has revealed “excessive credit use” has overtaken “unemployment/loss of income” as the most common cause of personal insolvency.

man with credit card bill

The government agency’s research found that of a total 25,225 cases of non-business related personal insolvency for the 2016-17 period, 8,870 (slightly over 35%) were due to “excessive use of credit”.

According to AFSA, “excessive use of credit” can include or be caused by:

  • Losses on repossessions
  • High interest repayments
  • (Financial) pressure

“Unemployment or loss of income”, which was the top cause of insolvencies over the 2007-08 and 2015-16 periods, was to blame for 8,035 insolvencies over 2016-17.

“Domestic discord or relationship breakdown”, retained its position as third cause, accounting for 3,222 instances.

Main non-business related cause of personal insolvency Number of insolvent debtors in 2015–16 Number of insolvent debtors in 2016–17
Excessive use of credit 7,697 8,870
Unemployment or loss of income 8,336 8,035
Domestic discord or relationship breakdown 3,083 3,222
Ill health 1,882 1,830
Gambling or speculation 542 525
Adverse legal action 500 386
Liabilities due to guarantees 293 232
Not stated 376 565
Other non-business reason 1,760 1,560
Total 24,469 25,225

Source: AFSA

Opposition Minister: “Credit card reform long overdue”

Shadow Minister for Small Business and Financial Services Katy Gallagher slammed Treasurer Scott Morrison for his supposed inaction on credit card reform, saying that in May 2016 he had “promised reforms to address unfair and excessive credit card fees and charges”.

“Some 16 months later, he is yet to deliver on this promise,” Senator Gallagher said.

“Eighteen sitting weeks after the Treasurer promised these reforms in response to a Labor-led Senate Inquiry, he has failed to even introduce legislation to the Parliament that would deliver these important changes.”

According to Senator Gallagher, these reforms promised to:

  • Improve competition and consumer protections
  • Improve disclosures to customers on fees and charges
  • Tighten responsible lending obligations
  • Rein in unfair interest chargers

Australia’s current total credit card debt is around $52 billion spread across 16.7 million credit cards, with an average consumer credit card debt of $4,730.

“Following on from abolishing ATM fees, the banks should now build upon this and rein in other excessive fees including credit card late payment fees,” Senator Gallagher said.

“It is only when these two things happen that credit card holders will get a fairer deal from their banks.”

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