Shocking Commonwealth Bank statement shows why credit card limits must be capped
A whopping 1.9 million Australians are struggling with credit card debt, a recent report by the Australian Securities and Investments Commission has found.
It remains the number one issue facing callers to the National Debt Helpline, with the problem so huge that in February this year, ASIC was tasked with setting up a cap on credit card limits, based on an amount that can be “affordably repaid” within a set period.
In a joint submission to ASIC’s credit card responsible lending consultation paper, the Consumer Action Law Centre, Choice, Financial Counselling Australia and the Financial Rights Legal Centre called for the cap to be limited to two years.
“A two-year assessment period would ensure that Australians are not trapped in long term, expensive credit card debt,” the submission said. “We consider that this proposal would significantly reduce the consumer harm being caused by inappropriate credit card product design and lending practices.”
Take Mary’s story contained in the submission; she’s a 79-year-old age pensioner who has been struggling to pay off a $1500 credit card debt for 15 years, because of the accumulating interest.
Or Assam’s story, a 58-year-old disability support pensioner, who has been unable to work since 2003 due to ill health. His bank CommBank has given him no fewer than five credit cards and jacked up his limit on his CommBank Mastercard from $2000 to $44,600 in 2015.
His credit card statement from January 2018 reads: “If you make only the minimum repayment each month, you will pay off the closing balance shown on this statement in about 146 years, five months. And you will end up paying estimated total interest charges of $340,604.78.”
Consumer Action Law Centre senior policy officer Katherine Temple told news.com.au: “People who are in persistent credit card debt are actually very profitable to the banks.
“People who are struggling to make ends meet tend to be the ones that pay the most in interest and fees, so trapping people in a cycle of credit card debt is often in the banks’ interests.”
She added: “Banks have designed and marketed credit cards in a way they are setting many people up to fail. What we see is people often don’t get to the point of default, they are constantly just making the minimum repayments but not really getting ahead in terms of the principal amount owed.
“In the industry they call them ‘revolvers’ and ‘transactors’. The intention is to keep people revolving, always having a balance that’s accruing, rather than transacting where you pay the balance off every month.”
Although credit cards have always been subject to responsible lending obligations, the assessment has been based on people’s ability to repay the minimum amount, which means people could be left paying off the same debt for decades.
The new ASIC rules, which will apply to all new cards issued after January 1, 2019, has been welcomed by consumer groups who have long argued credit cards have “been designed to trap many people in long-term, expensive debt”.
Ms Temple said it was “just another example of the banks designing their products in the way that makes them the most money rather than in a way that helps people’s financial wellbeing”.
“If they were serious about doing the right thing they would be promoting savings more and selling us products that suit our needs, rather than trying to trap us in decades of debt,” she said.