Tag: Credit Cards

ASIC Highlights The Credit Card Debt Bomb

ASIC’s review into credit card lending in Australia has found that 18.5% of consumers are struggling with credit card debt. ASIC reviewed 21.4 million credit card accounts open between July 2012 and June 2017.

ASIC’s report (REP 580) finds that while credit cards offer flexibility, they can present a debt trap for more than one in six consumers. In June 2017 there were almost 550,000 people in arrears, an additional 930,000 with persistent debt and an additional 435,000 people repeatedly repaying small amounts.

‘Our findings confirm the risk that credit cards can cause financial difficulty for many Australian consumers’, ASIC Deputy Chair Peter Kell said.

Consumers are also being provided with credit cards that don’t meet their needs. For instance, many consumers carry balances over time on high interest rate products, when lower-rate products would save them money. ASIC estimates that these consumers could have saved approximately $621 million in interest in 2016–17 if they had carried their balance on a card with a lower interest rate.

Deputy Chair Kell said that ‘only a handful of credit providers take proactive steps to address persistent debt, low repayments or poorly suited products. There are a number of failures by lenders to act in the interests of consumers and we expect them to respond swiftly to our findings. We will be following up to ensure the problems we have identified are addressed, including public updates later this year’.

ASIC has also today commenced consulting on a new requirement that will strengthen responsible lending practices for credit cards.

ASIC also looked at balance transfers and their effect on debt outcomes. The data shows that while many consumers reduce their credit card debt during the promotional period of transfer to a new card, a concerning number of consumers increase their debt: over 30% of consumers increase their debt by 10% or more after transferring a balance.

ASIC found that rules introduced in 2012 that require lenders to apply repayments against amounts accruing the highest interest first have helped reduce the interest charged on credit card debt. However, four lenders (Citi, Latitude, American Express and Macquarie) have retained old rules for grandfathered credit cards open before June 2012. ASIC estimates that almost 525,000 consumers have paid more interest as a result.

ASIC found that while these four credit providers are not breaking the law, they are charging their longstanding customers more interest than they should have been, and their conduct is out of step with the rest of the industry.

In anticipation of  a new Banking Code of Practice, from 2019 Citi and Macquarie will no longer retain the older repayment allocation methodology for grandfathered credit cards. American Express has also indicated that it will make this change in 2019. Lattitude is considering its position.

Background

On 16 December 2015 the Senate Economics References Committee released its report relating to credit card interest rates, Interest rates and informed choice in the Australian credit card market (the Senate Inquiry). A primary concern of the Committee was that too many Australians are ‘revolving’ credit card debt for extended periods of time while paying high interest charges.

In March 2018, the Government implemented the first phase of reforms in response to the Senate Inquiry. These reforms will help prevent future consumers from experiencing problem credit card debt by:

  • ensuring that credit providers assess a consumer’s ability to repay a credit card limit over a period prescribed by ASIC
  • banning unsolicited credit limit increase invitations, and
  • making it easier for consumers to cancel credit cards.

ASIC has also today released a consultation paper about the credit assessments reform proposing that ASIC prescribe a period of three years. Once implemented this reform will strengthen responsible lending assessments for credit cards.

ASIC’s review

In 2017, ASIC began a review into credit card lending in Australia. As well as picking up on issues highlighted by previous regulatory reforms and the Senate Inquiry.

ASIC’s review of credit card lending focused on:

  • consumer outcomes – including whether there are people with debt that causes problems, such as missing payments or carrying lots of credit card debt over time
  • the effect of balance transfers on the amount of debt, and
  • the tailored rules that apply to credit cards.

Snapshot of the market

  • As of June 2017:
    •  there were 14 million open credit card accounts, an increase of over 300,000 since 2012.
    • Outstanding balances totalled almost $45 billion.
    • Approximately $31.7 billion in balances on credit cards that were incurring interest charges.
  • Consumers were charged approximately $1.5 billion in fees in 2016-17, including annual fees, late payment fees and other amounts for credit card use.
  • Around 62% of consumers had only one credit card between 2012 and 2017.
  • Consumers with multiple cards generally had two cards.
  • Fewer than 5% of consumers had five or more credit cards between 2012 and 2017.

Credit Card Compare Acquires Singaporean Financial Marketplace Finty

Australia’s largest credit card comparison website, Credit Card Compare
(CCC) announced a seven-figure investment to acquire Singapore’s first rewards-based financial comparison marketplace, Finty.

Credit Card Compare Co-Founder and CEO, David Boyd says that by acquiring Finty, it allows Credit Card Compare to establish its presence in Asia.

“We want to get off the island. Singapore is the natural gateway to the fast-growing ASEAN region where GDP growth outpaces here in Australia. This acquisition is a key plank in our company’s growth strategy,” said David.

“This acquisition allows us to build upon a successful business which dovetails with our own vision for a comparison service that makes financial decisions easier, more rewarding, and, ultimately, more fun.”

Finty Rewards, the innovative cash rewards program unique to Finty in Singapore, pays out cash on a revenue sharing model to customers when they apply for credit cards and personal loans via the Finty website.

Since its launch in April 2017, Finty has made strong inroads into the credit card and personal loan space in Singapore, having developed strong relationships with key banking partners despite operating in the highly competitive financial services comparison space.

“This deal is the culmination of months of work. The Finty team has built a great business in a short time, overcoming challenges and building their brand along the way. They are an extremely dynamic, hard-working, and smart team. We are delighted to be working with them as we expand into Asia.”

“We are excited to work with new banks and brands, and to continue building on our existing relationships with international partners including American Express, HSBC, and Citi.”

Co-Founder and Managing Director of Finty, Kwok Zhong Li, said that by partnering with Credit Card Compare, the Finty brand will be better positioned to thrive in Singapore. Together with Credit Card Compare, we now have more resources, manpower and expertise to thrive in Singapore while making a strong entrance into other countries,” Zhong Li said.

“Finty makes financial decisions simple, enjoyable, and rewarding. It’s the first financial marketplace in Singapore to offer cash rewards based on a revenue sharing model.”

Credit Card Compare is currently the largest comparison site in Australia dedicated to credit cards, where more than two million consumers have used its marketplace in the last 12 months to compare and apply for a credit card.

“At Credit Card Compare, our mission is to connect Australians with credit cards that will improve their financial lives. Comparing cards can be a daunting task, however we have developed a platform that easy to use with the best offers in the market.

Credit Card Compare is Australia’s largest comparison site designed exclusively to help Australian consumers compare, research, and apply for credit cards. We help millions of Australians confidently select the most suitable credit card for their lifestyle and financial needs. Founded in 2008 by brothers David and Andrew Boyd, Credit Card Compare remains independently co-owned by the two original founders to this day. It features data, calculators, tools and reports on 200+ cards from Australia’s largest banks and credit unions, and maintains a prime online ranking and share of voice in one of Australia’s most competitive online fields: comparison sites.

Finty  is Singapore’s first rewards-based financial comparison marketplace that makes financial decisions simple, enjoyable and rewarding. Finty offers cash rewards based on revenue sharing and the online platform uses a proprietary predictive model to determine the value of cash rewards for customers when they apply for a range of credit cards and personal loans from major bank partners.

Credit Card Rules Tightened – Finally!

Credit card providers will be forced to scrap unfair and predatory practices – after the legislation passed through the parliament on Thursday.  However, the implementation timetable is extended into 2019.  It also included a package of other measures.

The reforms include:

Requiring affordability assessments be based on a consumer’s ability to repay the credit limit within a reasonable period (from July 2018).  This tightens responsible lending obligations for credit card contracts.

Banning unsolicited offers of credit limit increases (from January 2019). At the moment, whilst the law forbids providers from making these sorts of offers in writing, offers can be made by phone and other mediums. This loophole has been exploited, but will now be closed.

Simplifying how credit card interest is calculated, especially, banning the practice of backdating interest rate charges. Currently, some providers were attracting new customers with promotional low rate, or no rate offers, say for the first month. But, if a customer failed to pay off in full a credit card bill after the first month, the credit card company was often retrospectively applying the new interest rate to previous purchases. This was allowed in the banks’ small print, but the government said the practice did “not align with consumers’ understanding and expectation about how interest is to be charged”. This will be banned, from next year.

Requiring credit card providers to have online options to cancel cards or to reduce credit limits (from January 2019). At the moment, some card providers force customers to come into a bank branch to reduce limits or terminate cards, and when they did come in were often persuaded not to do it. The asymmetry between fast credit card approvals online, and slow cancellation will end.

The Treasurer said:

This legislation will protect vulnerable Australians from predatory behaviour which seeks to make a quick buck from people’s misfortune, and compound their financial hardship. This is the first phase of reforms outlined in the Government’s response to the Senate Inquiry into the credit card market, which seeks to put more power in the hands of consumers.

The Bill will also materially boost competition in the banking sector by allowing small lenders to call themselves banks; a significant change that will entice new lenders and challenger banks to enter the market. This will provide greater choice for Australians and put downward pressure on the cost of banking products and loans.

In lifting the ban on the use of the word ‘bank’, any lender with an ADI licence will now be able to market themselves as a bank, whether they have bricks and mortar branches or operate exclusively online. Off the bat, this reform paves the way for more than 60 current Australian lenders and credit unions to call themselves banks.

The Bill – the Treasury Laws Amendment (Banking Measures No. 1) 2017 – also strengthens financial stability by providing the Australian Prudential Regulation Authority (APRA) a new reserve power over the lending activities of non-banks. It modernises APRA’s legislative framework by making clear APRA’s roles and responsibilities under the Banking Act 1959.

This Bill accompanies the Turnbull Government’s Banking Executive Accountability Regime, which brings greater accountability to our banks by introducing tough new rules for banks and their executives, and the Crisis Management Bill, which strengthens APRA’s crisis management powers.

We discussed the implications of the Bail-in clauses recently, especially relating to bank deposits

 

CBA Blocks Credit Card Purchases of Bitcoin Etc.

CBA has said that due to the unregulated and highly volatile nature of virtual currencies, customers will no longer be able to use their CommBank credit cards to buy virtual currencies. This came into effect as of 14 February 2018.

Our customers can continue to buy and sell virtual currencies using other CommBank transaction accounts, and their debit cards.

We have made this decision because we believe virtual currencies do not meet a minimum standard of regulation, reliability, and reputation when compared to currencies that we offer to our customers. Given the dynamic, volatile nature of virtual currency markets, this position is regularly reviewed.

The restriction on credit card usage for virtual currencies will also apply to Bankwest credit cards.

Q&A

Why are we making this change?

  • Virtual currencies are unregulated and, as has been made clear in recent months, highly volatile. Effective 14 February, we will no longer authorise credit card purchases for these currencies.

How can I buy virtual currencies?

  • You can still buy and sell virtual currencies using other CommBank transaction accounts, and debit cards, as long as you comply with our terms and conditions and all relevant legal obligations.

I recently tried to purchase virtual currencies using my debit card and it was declined. Why did this happen?

  • We are aware of some instances where customers found that their attempts to buy or sell virtual currencies did not work. This can be due to a number of reasons, including:
    • The virtual currency exchange the customer is using has been blocked by our security systems. A currency exchange will be blocked if a number of the transactions it has previously processed are found to have been fraudulent, inconsistent with our policies or outside of the Group’s risk tolerance.
    • The payment method the customer uses is no longer accepted by the currency exchange. Some exchanges have recently stopped accepting certain payment methods.
    • The virtual currency exchange’s bank blocks the transaction for security reasons.

Can I still get credits from virtual currency exchanges paid to my credit card?

  • Yes, credits will continue to be authorised by the Bank onto credit cards.

Westpac remediates credit card customers more than $11 million

ASIC says Westpac has provided around $11.3 million in remediation to around 3,400 credit card customers after ASIC raised concerns about its credit card limit increase practices.

In 2016, ASIC announced that Westpac had agreed to improve its lending practices when providing credit card limit increases to customers to ensure that reasonable inquiries are made about customers’ income and employment status (refer: 16-009MR).

As part of Westpac’s commitment, it reviewed credit limit increases previously provided to affected cardholders where they subsequently experienced financial difficulty. Following this review, Westpac provided remediation to around 3,400 customers, which included refunds of around $3 million for fees and interest, and around $8.3 million in credit card balances waived.

Westpac engaged an independent expert to provide assurance over the remediation program and has made the first two payments (of the $1 million total contribution) to support financial counselling and financial literacy, with further payments to follow in 2018 and 2019.

Background

In 2014 ASIC conducted a review focussing on credit card providers’ invitations to customers to increase credit card limits. ASIC’s concerns with Westpac’s processes were identified through the course of this review.

The Government has introduced reforms into Parliament that will prohibit credit card providers from sending credit card limit increase invitations regardless of whether the consumer has provided their consent.

The Government’s reforms will also require credit card providers to assess whether a credit card limit might be unsuitable based on the consumer’s ability to repay the proposed credit limit within a period prescribed by ASIC, rather than the consumer’s ability to meet the minimum repayment.

Using Credit Card Payments Data For The Public Good

Interesting post from the UK’s Office for National Statistics blog, which highlights the power of data analytics using anonymised  credit card payments data.

The intelligent use of data gathered by our leading financial institutions can result in faster, more detailed economic statistics.  Tom Smith describes how a joint event staged by ONS and Barclaycard illustrates the vast statistical potential of  anonymised  payments data.

“My job at the Data Science Campus brings many fascinating days as we work with organisations across government and the UK to unlock the power of data. One recent event particularly stands out.

Our experts from across ONS joined forces with analysts from one of the world’s biggest financial organisations to explore how commercial payments data could help tackle some of the UK’s biggest economic questions.

Following a successful knowledge sharing day at the ONS Data Science Campus, Barclaycard, which sees nearly half of the nation’s debit and credit card transactions, hosted a ‘hackathon’ at the state-of-the-art fintech innovation centre Rise. This brought together 50 economists, developers, data scientists and analysts to address three challenges:

  • How could payments data improve our understanding of regional economies?
  • Where could financial inclusion policies best be targeted?
  • How could we use payments data to create superfast economic indicators?

Over two days, the ONS and Barclaycard teams worked collaboratively – in some cases right through the night – to identify how the payments data could be used to improve our understanding of the economy. The traditional hackathon finish saw the teams ‘pitching’ their work to a panel of judges from across ONS and Barclaycard.

The winning team focused on building predictors and indicators that provide fine-detail information for trending economic changes. Even at this early stage of development, their work shows how bringing together card spending data and economic data held by ONS could improve the information available for policy & strategy decision makers to make timely economic decisions.

There is much work to be done to turn this demonstration into a working model. But one of the things that stood-out for the judges was the winning team’s roadmap for how to get there, including the development and data architecture needed for a successful prototype.

“We’re really excited to play a key role in helping to support a better understanding of UK economic trends and growth. The hackathon was a great event to harness the excitement and expertise created through our partnership with the ONS, and the winning teams have shown tangible evidence that payments data can indeed be used for public good.” – Jon Hussey, MD Data & Strategic Analytics, Barclaycard International

For the Data Science Campus, collaborations are all about knowledge exchange. They are an opportunity for us to access expertise in tools, technologies and approaches to data science from outside government, evaluate them in a safe environment, and share our learning across ONS and wider government.

It was inspiring to see the level of energy, drive and collaboration, and to pool ONS and Barclaycard skills into understanding how payments data can be used for public good. (And it is worth pointing out that no money changed hands and no personal data were involved. ONS is only interested in producing aggregate statistics and analysis.)

Our work with Barclaycard illustrates perfectly how the rich data held by partners outside government can improve our understanding of the UK’s economy. This is a key part of ONS’ Better Statistics, Better Decisions strategy, enabling ONS to deliver high quality statistics, develop and implement innovative methods, and build data science capability by tapping in to best practices wherever they may be.

ANZ introduces accessibility features

ANZ today announced the rollout of its specially designed accessibility features to all retail and commercial Visa debit cards to make everyday banking easier for customers with a disability.

All ANZ’s 3.4 million Visa debit cards will now have tactile indicators, larger fonts and high visibility leading edges to help customers identify their cards and to help them easily identify which way to insert their card into ATM and EFTPOS terminals.

Commenting on the rollout, ANZ Senior Manager Everyday Banking Steve Price said: “We know that one in five Australians lives with a disability of some sort, so it’s really important we develop products all our customers can use conveniently.

“We have a commitment to inclusive design and accessibility standards in all aspects of our product development, so the extension of these features to a further 3.4 million cards is a significant part of delivering on that.”
The new cards also work with all of ANZ’s mobile payment options, including Apple Pay, Android Pay, Samsung Pay and Fitbit Pay. They also feature Visa PayWave so customers can ‘tap and pay’ wherever contactless payments are accepted, including at ANZ’s contactless ATMs

The rollout follows ANZ’s development of the accessibility features that were first introduced to its Access cards in October 2016. The features will also be extended to ANZ’s range of commercial credit cards in November, and to Visa debit cards in New Zealand early next year.

ANZ worked with Vision Australia to run focus groups with people who have different levels of vision impairment to test the accessibility features before developing the cards.

CBA To Launch New Low Rate Credit Card

Commonwealth Bank today has announced three new initiatives including a new credit card with an interest rate below 10 per cent.

The three initiatives are:

  1. A new credit card with a 9.90 per cent purchase interest rate
  2. All customers with a credit card can receive real-time alerts for credit card repayments and high cost transactions, and all transaction account customers can receive overdrawn account alerts
  3. All credit card customers will have access to an instalment feature designed to help them pay down existing balances or large purchases, in easy fixed instalments

Clive van Horen, Executive General Manager at Commonwealth Bank, said: “We’ve heard feedback from customers and consumer groups and understand there’s a need to offer a greater range of affordable and easy to manage products.”

Designed to give customers more visibility and control over their personal finances, the new credit card, real-time alerts, and instalment feature will launch in phases.

“We know there’s strong demand for a simple credit card option and we also recognise we need to help our customers avoid credit card late payment and overdrawn account fees. The real-time alerts in our CommBank App give customers even more tools to help manage their spending and avoid fees and charges,” said Mr van Horen.

New credit card

Available from early 2018, the new CommBank credit card will offer a highly competitive interest rate of 9.90 per cent, and a low account keeping fee of just $5 per month. The new credit card is suited to customers who want a low, competitive interest rate, low account keeping fee with a low maximum limit, and no access to cash advances.

Real-time alerts for credit card repayments, overdrawn accounts and high cost transactions

From November, customers will be able to take advantage of three new alerts:

  • Customers with the CommBank App will receive real-time alerts, reminding them their credit card payment is due. If their payment becomes overdue, customers will receive an additional alert advising them if they make their payment by midnight the following day they will not incur a late payment fee.
  • Customers whose transaction accounts have been overdrawn due to a scheduled payment or direct debit will receive a real-time alert and they too will not incur an overdrawn access fee if settled by midnight.
  • Customers that make a high cost credit card transaction (such as an ATM cash advance or online gambling) will be alerted in real time that these transactions incur cash advance fees and interest.

Instalment feature

From mid-2018, credit card customers can choose to pay down large purchases or a portion of their balance through fixed monthly instalments at a discounted rate, over a fixed period, allowing them greater control of their credit card repayments.

Empowering customers to manage their spending and avoid fees and charges

These latest product initiatives join the suite of online tools and features launched over the last three years to give customers more visibility over their credit card spending, including:

  • Transaction Notifications: Eligible customers automatically receive an instant notification every time they pay with their credit card.
  • Lock, Block, Limit: Gives customers real-time control over what types of transactions their card could be used for – such as ATM withdrawals and overseas spending. More than 1 million cards have enrolled for this feature since 2014.
  • Spending cap and credit limit decreases: Customers can set a spending cap to manage their spending or reduce their credit limit online. Approximately 13,000 credit limit decreases are performed each month since launch.
  • Spend Tracker: Each credit card transaction is categorised automatically in the CommBank App so customers can see where they are spending and compare expenditure across months.
  • Earlier this year CommBank also launched Click to Close: a feature which allows customers to close their credit cards online through NetBank and the CommBank App.

“We continue to innovate for our customers’ benefit and we hope these latest steps will be welcomed,” added Mr van Horen.

Card Surcharge Changes Started

ACCC says that from tomorrow, every business across Australia will be banned from charging customers excessive surcharges for using certain types of EFTPOS, Mastercard, Visa and American Express cards to make payments.

The excessive surcharging ban has applied to large businesses since September last year and now extends to all businesses that are either based in Australia or use an Australian bank. The ban does not affect businesses that choose not to apply a surcharge to payments.

The ban restricts the amount a business can charge customers for using an EFTPOS (debit and prepaid), MasterCard (credit, debit and prepaid), Visa (credit, debit and prepaid) and American Express cards issued by Australian banks.

Payment types that are not covered by the ban include BPAY, PayPal, Diners Club cards, American Express cards issued directly by American Express, cash and cheques.

“The good news for consumers is that businesses can now only surcharge what it actually costs them to process card payments, including bank fees and terminal costs. For example, if a business’s cost of acceptance for Visa Credit is 1.5 per cent, consumers can only be charged a surcharge of 1.5 per cent on payments made using a Visa credit card,” ACCC Deputy Chair Dr Michael Schaper said.

“Our message to business is that you are not allowed to add on any of your own internal costs when calculating what surcharge you will charge customers. The only costs businesses can include are external costs charged to you by your financial provider.”

If businesses want to set a single surcharge across multiple payment methods, the surcharge must be set at the level of the lowest cost method, not an average. For example, if a business’s cost of acceptance for Visa Debit is 1 per cent, for Visa Credit is 1.5 per cent, and for American Express is 2.5 per cent, the single surcharge would be 1 per cent as that is the lowest of all payment methods.

“Our advice for businesses wanting to set a single surcharge regardless of the type of card their customers use is it must be the lowest of all the payment methods. You can’t use an average of all payment methods or you will land yourself in trouble,” Dr Schaper said.

Businesses should have received merchant statements from their financial institutions in July setting out their cost of acceptance for each payment method.

The RBA indicated as a guide that the costs to merchants of accepting payment by debit cards is in the order of 0.5 per cent, by credit card 1-1.5 per cent and for American Express cards around 2-3 per cent. The ACCC has found that some merchants have incurred higher costs than these but any surcharge level imposed by merchants cannot be higher than the costs incurred by them for accepting that payment method.

“If businesses are unsure about their cost of acceptance, they should contact their financial institutions,” Dr Schaper said.