Credit Card Reform-
The Credit card reform which was passed on 01 July this year seeks to address the $37-billion in credit card debt that Australian households are struggling to repay. Interest on the debt is said to average out at $4,852 per cardholder, as per the latest figures released by Roy Morgan Research. An impressive 15-million credit cards are said to be in circulation in Australia, with each household in ownership of two or three and under the pressure of compounded interest. Effective from 01 July 2012, the reform was passed in the hope of empowering the cardholder by providing more information and less opportunity to be taken advantage of by lending institutions. The reform introduces changes to both communication and charges for credit card holders in order to help them out of the depths of debt.
Applications for credit cards are now to be granted in light of affordability as applicants are now to nominate a credit limit when they lodge their application. Credit cards were previously being offered too easily, without any consideration over whether the lender could afford to repay them. The changes also mean that lenders are no longer to solicit business from consumers or offer to increase their credit limit.
Reform Changes Credit Card Fees and Rules
Another of the major changes to take place was eliminating fees that are being applied to cards that are over their credit limit, unless with the permission of the account holder. This will enable the cardholder to make the necessary adjustments, and make a payment into the account, rather than being penalized and paying even more. In addition card holders are now to receive notifications when they exceed their credit limit to give them a chance to make adjustments.
One of the most effective reforms being introduced is rumored to be saving the average Australian household around $360 per month, will allow Australians to pay their debt off faster as, beginning 01 July payments into credit cards are to be allocated against the highest portion of the debt on the card.
Card holders will be given more information about their credit card debts and the time it will take to pay them off. They now need to be issued with a fact sheet about all the charges applicable to their account to keep for their own reference. New statements are now to include the duration it will take to pay the debt off if only the minimum installment is made every month in order to show the consumer the effects of compounded interest over time. This will also increase consumer awareness about and give people a chance to pay extra into their credit card accounts. The new regulations are stricter on providers who are now expected to provide full transparency and give consumers more information about the terms of the interest-free periods they advertise in order to give them a better understanding of interest rates.
Card holders have also been advised to keep a close eye on the charges and interest that they are charged henceforth as there is some concern that banks will attempt to make up for lost revenue in other areas. In addition, financial analysts have urged the public to keep closer tabs on their spending and exercise some shopping restraint. Other credit-savvy tips that have been thrown into the mix include making your card payment on time, always paying more than the minimum balance owed, not rolling your credit over and avoiding higher than necessary interest by not taking cash advances out. The reform legislation, which has been met with mixed reactions, have been interpreted by some experts to create a more suitable credit environment for card holders.
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