(Reuters) - Australia’s corporate regulator said on Wednesday it plans to make banks that issue credit cards set lending limits at what borrowers are able repay within three years, after a review revealed consumers ensnared in credit card debt.
The Australian Securities and Investments Commission (ASIC) said it found that 18.5 percent of consumers were struggling with credit card debt, adding that credit cards present a debt trap for more than one in six consumers.
ASIC proposes a three-year repayment period to strike a balance between ensuring consumers have reasonable access to credit cards and preventing them from being unable to repay debt.
“Our findings confirm the risk that credit cards can cause financial difficulty for many Australian consumers”, ASIC Deputy Chair Peter Kell said in a statement.
ASIC also estimates that almost 525,000 consumers have paid more interest as a result of Citi, Latitude, American Express and Macquarie retaining old rules for grandfathered credit cards taken out before June 2012.
The proposal comes after an enquiry into financial misconduct in the country in March found that Australia’s top banks routinely and repeatedly breached laws when issuing home loans, credit cards and other consumer loans.
The new reform will apply to credit licensees providing credit or credit assistance in relation to both new and existing credit card contracts from January 1, 2019.
(This version of the story has been refiled to correct the wording in the opening paragraph.)
Reporting by Chandini Monnappa in Bengaluru; Additional reporting by Devika Syamnath; Editing by Eric Meijer