Andrew Lofthouse: Almost 2 million Australian’s are drowning in credit card debt. And there’s a good chance they will never pay it back.
Corporate cop ASIC has put major banks and credit companies on notice, accusing them of trapping them with unsuitable cards.
Ross Greenwood: The crippling statistic – one in every six people with a credit card – is in financial distress is a wake-up call. Laws will change.
Peter Kell: Banks will have to undertake a tougher assessment of whether the customer can pay back
Ross: From January 1 next year, a bank must be certain a person can repay a debt within three years before issuing any new card.
Fiona Guthrie: Banks haven’t done anything about it because its highly profitable. They have been sitting back and milking Australians for all there worth.
Ross: Also going – unsolicited offers to increase your card limit from say $10,000 to $20,000.
Peter: Those will now be banned going forward. They can often hit people at a low moment.
Ross: here’s how the credit card debt trap works – say you have $5000 outstanding on your card. The interest rate is 18 per cent.
To pay it back in three years costs $181 a month but the banks minimum repayment is $20 a month. At that rate, you’re trapped – paying 18 per cent for 33 years.
Fiona: Because it’s so expensive, you are never able to catch up.
Ross: And in term. That causes enormous stress on households.
Keith Garner: Many people when they come to our financial counsellors at Wesley Mission, they arrive with a bag of envelops. And they have many, many of these red envelops that they don’t even open.
Ross: ASIC says if people or their banks actively change to the low rate card, the savings would be $620 million a year.
But, if you’re a bank – lending money at 18 to 20 per cent a year, why would you change?
And that’s what ASIC wants fixed.
Peter: Too many players in this market have not been acting in the interests of their customers.
Ross: Ross Greenwood, Nine News.