New Responsible lending reforms to unsecured credit

The Australian Securities and Investments Commission (ASIC) has introduced new assessment measures to be used by credit providers when assessing credit limit increase and new credit card contracts for consumers.

From 1st of January 2019, credit licensees will be required to assess whether a credit limit increase and new card is unsuitable for a consumer based on whether the consumer could repay the full credit limit amount within a 3-year period which has been introduced by ASIC.

ASIC has claimed that the three-year period would “strike an appropriate balance” between:
• preventing consumers from being in unsuitable credit card contracts, and
• ensuring that consumers continue to have reasonable access to credit through credit card contracts.

ASIC also stated that when assessing whether a credit card is “not unsuitable” for a consumer, it expects that:
• The credit provider will assume the consumer is being charged interest over the three-year period and that the highest rate of interest applicable under that contract be applied in the calculations.
• Where a consumer has existing credit card contracts with other credit providers, the credit provider will assume that the consumer is making repayments on those existing contracts sufficient to repay the limit — including interest — within three years (rather than the minimum repayment amount required under the existing contracts).

Furthermore, ASIC has stated that credit providers are expected to have systems in place to ensure that they can meet the new obligations before the legal requirement comes into effect on 1 January 2019.

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