Tag: Credit Cards

Credit Card Rules Tightened

The Treasury has released draft legislation for review which is designed to improving consumer outcomes and enhancing competition. The purpose of the amendments is to reduce the likelihood of consumers being granted excessive credit limits, to align the way interest is charged with consumers’ reasonable expectations and to make it easier for consumers to terminate a credit card or reduce a credit limit.

The draft Bill would:

  • require that affordability assessments be based on a consumer’s ability to repay the credit limit within a reasonable period;
  • prohibit unsolicited offers of credit limit increases;
  • simplify how interest is calculated, including prohibiting credit card providers from backdating interest charges; and
  • require credit card providers to have online options to cancel a credit card or to reduce credit limits.

The consultation on the draft Bill will close on Wednesday, 23 August 2017.

Reform 1: tighten responsible lending obligations for credit card contracts

This introduces a new requirement that a consumer’s unsuitability for a credit card contract or credit limit increase be assessed on whether the consumer could repay an amount equivalent to the credit limit of the contract within a period determined by the Australian Securities and Investments Commission (ASIC).

This requirement will apply to licensees that provide credit assistance, and licensees that are credit providers, in relation to both new and existing credit card contracts from 1 January 2019. Existing civil and criminal penalties for breaches of the responsible lending obligations will apply to breaches of the new requirement. Existing infringement notice powers will also apply.

Reform 2: prohibit unsolicited credit limit offers in relation to credit card contracts

This prohibits credit card providers from making any unsolicited credit limit offers by broadening the existing prohibition to all forms of communication and removing the informed consent exemption. These amendments apply in relation to both new and existing credit card contracts from 1 January 2018. Existing civil and criminal penalties for breaches of the prohibition against unsolicited credit limit offers will apply. Existing infringement notice powers will also apply.

Reform 3: simplify the calculation of interest charges under credit card contracts

These amendments will prevent credit card providers from imposing interest charges retrospectively to a credit card balance, or part of a balance, that has had the benefit of an interest-free period. These amendments apply in relation to both new and existing credit card contracts from 1 January 2019.

Failure to comply with this requirement attracts civil penalties of 2,000 penalty units and criminal penalties of 50 penalty units. The infringement notice scheme contained in the Credit Act will also apply.

Reform 4: reducing credit limits and terminating credit card contracts, including by online means

A key amendment is to require credit card contracts entered into on or after 1 January 2019 to allow consumers to request to reduce the limit of their credit card (a ‘credit limit reduction entitlement’) or terminate a credit card contract (a ‘credit card termination requirement’).

Where a credit card contract contains a credit limit reduction entitlement or a credit card termination requirement the amendments also provide for the following:

  • the credit card provider must provide an online means for the consumer to make a request to reduce their credit card limit or terminate their credit card contract;
  • following such a request, the credit card provider must not make a suggestion that is contrary to the consumer’s request; and
  • the credit card provider must take reasonable steps to ensure that the request is given effect to.

These further amendments apply to credit card contracts entered into before, on or after 1 January 2019.

Failure to comply with these requirements attracts civil penalties of 2,000 penalty units and criminal penalties of 50 penalty units. The infringement notice scheme contained in the Credit Act will also apply.

 

Banks can’t fight online credit card fraud alone, and neither can you

From The Conversation.

Online credit card fraud is on the rise in Australia, but pointing the finger at any one group won’t help. It’s an ecosystem problem: from the popularity of online shopping, to the insecure sites that process our transactions, and the banks themselves.

A recent report from the Australian Payments Network found that:

  • the overall amount of fraud on Australian cards increased from A$461 million in 2015 to A$534 million in 2016
  • “card not present” fraud increased to A$417.6 million in 2016, up from A$363 million in 2015
  • 78% of all fraud on Australian cards in 2016 was “card not present” fraud.

“Card not present” fraud happens when valid credit card details are stolen and used to make purchases or other payments without the physical card, mainly online or by phone.

While these numbers may seem alarming, it’s important to put them in context. Australians are increasingly carrying out transactions online; the report notes that we made 8.1 billion card transactions totalling A$715.5 billion in 2016.

The shift towards online credit card fraud also comes at the cost of other types of fraud. Cheque fraud, for example, was down to A$6.4 million in 2016, from A$8.4 million in 2015.

Still, it’s fair to ask: are the banks doing enough to keep our details secure?

The banks and security

The banks currently have a range of measures in place to protect customers from card fraud:

  • Chip and pin: Australia mandates the use of “chip and pin” technology. This replaced the need to swipe the magnetic strip on credit cards and is recognised as being more secure.
  • Two-factor authentication: Many Australian banks use text messages or tokens that generate a unique, time-limited code to help verify the legitimacy of transactions.
  • Monitoring of customer habits: Australian banks typically have a complex set of algorithms that monitor the spending habits and transactions of their customers. They frequently have the ability to identify a suspicious (often fraudulent) transaction and block it.

Overall, Australian financial institutions are investing time and technology into the prevention of fraud. However, recent allegations that the Commonwealth Bank of Australia breached anti-money laundering laws suggest that the big banks are not immune from the problem.

Data breaches and malware

Credit card fraud is going where the action is.

According to the research company Neilsen, “nearly all online Australians have used the internet to do some form of purchasing activity”. This means that Australians are increasingly sharing their credit card details with companies around the world.

Large-scale data breaches are a common occurrence. Many organisations have been compromised in some way, including Australian companies like Kmart and David Jones. A variety of personal information can be exposed, and this often includes customers’ credit card details.

Batches of stolen credit card details can be sold on the dark web to other motivated offenders. In one UK example, such details were being sold for as little as £1 per card.

Offenders are also using different types of malware, or computer viruses, to obtain the personal information of unsuspecting victims. In many cases, this includes bank account and credit card details through successful phishing attempts (or spam emails).

The liability fight

Banks will generally refund customers for any fraudulent losses incurred on their credit cards. However, customer must take “due care with their confidential data”.

There is also an onus on the customer to check their credit card statements and notify their bank of any suspicious activity.

But this may not always be the case. In 2016, the former Metropolitan Police Commissioner in the UK made headlines for suggesting that customers should not be refunded by banks if they failed to protect themselves from fraud.

Instead, he argued that customers were being “rewarded for bad behaviour” rather than being encouraged to adopt cyber-safety practices, such as antivirus software and strong passwords.

These statements were met with anger by many advocacy groups who equated them with victim blaming. It was further exacerbated by a leaked proposal by the City of London Police to shift the responsibility of fraud losses from banks to the individual.

While this recommendation was never adopted, the tension may continue to grow when it comes to fraud liability.

Looking for answers

Pointing the finger of blame at any one party is not a constructive solution. Banks alone cannot combat online credit card fraud. Neither can their customers.

There are simple steps to reduce the likelihood of online fraud: having up-to-date antivirus software and strong passwords is an important step. There are sites such as haveibeenpwned that demonstrate how vulnerable and exposed our passwords can be.

Still, it’s difficult to protect against social engineering techniques used by offenders to manipulate victims into handing over their personal details. Not to mention, the risks posed by third-party data breaches, which are beyond the control of individuals.

The introduction of mandatory data breach reporting legislation in Australia in 2017 may have a positive impact. By requiring organisations to let their customers know when their personal information has been compromised, individuals can be proactive about cancelling cards, changing passwords and taking out credit reports to check for fraudulent activity.

Businesses also need to recognise the importance of protecting their customer information. It is critical to overcome the mentality that cybersecurity is simply a technology problem or an IT issue. It should be firmly on the corporate management agenda.

Fraud is inevitable, regardless of the technology being used. Collaborative efforts between banks, businesses, government and individual consumers must improve.

No one group alone can effectively end online credit card fraud. Nor should they be expected to.

Author: Cassandra Cross, Senior Lecturer in Criminology, Queensland University of Technology

Scott Morrison is cracking down on credit cards

From Business Insider.

Australians have around $52 billion in debt outstanding on credit cards and the federal government is going after this lucrative part of the banking sector with four tough new measures in a crackdown on card debt.

Treasurer Scott Morrison has announced plans to change the way eligibility for a credit card is assessed, shifting it from the ability to pay the minimum repayment to being able “to repay the credit limit within a reasonable period”.

Before the end of the year, Morrison has pledged to pass legislation banning unsolicited offers of credit limit increases. The ban follows on from changes in 2011 which stopped card issuers offering written offers to increase credit limits unless the customer had already given consent. Banks switched to verbal offers as a way around the laws.

The remaining changes will see interest calculations simplified and force providers to offer online options to cancel cards or to reduce credit limits.

Morrison argues that under the current arrangements, people enticed to a card by an interest-free period have no way of calculating the cost and interest charges if they do not pay off the balance in full when the offer period ends.

Such are the technicalities and complications, most consumers have no idea how interest charges apply, and therefore incur heavy interest charges after the interest-free period when their balance is not paid in full.

Morrison said the government was targeting “unfair and predatory practices” by credit card providers.

“These measures will deliver the first phase of reforms outlined in the Government’s response to the Senate Inquiry into the credit card market,” he said.

“The reforms will substantially reduce the incidence of consumers being granted excessive credit limits and building up unsustainable debts across multiple credit cards.

“Collectively, these measures will help prevent the debt cycle that many Australians find themselves in.”

Of the $52 billion owed on 16.7 million credit cards in Australia, which often attracts interest charges of around 20%, the average outstanding balance is $4,730.

Westpac Plans to Launch Low Rate No Frills Credit Card

During today’s evidence to the House Standing Economics Committee, Westpac CEO Brian Hartzer confirmed they are planning to launch a no-frills (e.g. no travel insurance) credit card with an interest rate below 10% and a limit of somewhere between $2,000 and $4,000 depending on ability to repay. The launch is expected within the next 2-3 months.

CBA Card Holders Will Be Able To Close Accounts On Line

CBA says CommBank customers will soon be able to close their credit card account online in real time giving them even greater control over their financial wellbeing.

In an Australian first, CommBank credit card customers will be able to close their credit card account online in real time giving them even greater control over their financial wellbeing. The fully digital experience will enable customers to close their credit card using the CommBank app or online without the need to go into branch or speak to our contact centre.

Clive van Horen, Executive General Manager Retail Products and Strategy, Commonwealth Bank said this is proof of the bank innovating to help customers have more control of their finances.

“Online credit card closure is another step on the path to providing customers with greater control of their financial wellbeing. We introduced Lock, Block, Limit in 2014 to provide customers with extra security and convenience at their fingertips, in real time. Last year we added spending caps and real time credit limit decreases. Next month customers will receive instant transaction receipts on their phones.

“Soon customers can go online to close their credit card at a time that suits them, simply with the app or NetBank,” Mr van Horen said.

Since launch more than one million cards are using “Lock, Block, Limit” through the CommBank app and NetBank, with this number increasing by around 5,000 each week.

“We are continuing to innovate and giving more control to credit card holders,” Mr van Horen added.

The real time, online credit card close feature will be available to customers later in 2017

Choice Calls For Easier Credit Card Cancellation

Choice, the consumer group, has called for consumers to be able to cancel their credit cards immediately online, rather than jump through the hoops which the banks currently prescribe.

They recently reviewed the cancellation policies of the big four and found a distinct lack of easy cancellation options.

What? No online cancellation?

Instead of being able to cancel your card online and quickly cut ties with the debt monster, the banks force you to call, write a letter or visit a branch in person.

Meanwhile, almost all other banking services – including applying for a credit card and having it approved – are available online these days.

To us, it looks like a blatant attempt to keep you attached to your credit card and keep the debt clock rolling. That’s why we’ve been pushing to have the tactic abolished since August 2015.

Our review comes as the banks are set to face a Parliamentary Inquiry on Friday this week, and it follows attempts by ANZ and Westpac to ward off credit card criticism by promising to cut interest rates on some “low rate” cards.

Jumping through hoops

Here’s what the banks require if you want to cancel your credit card.

ANZ

  1. Call or write to ANZ.
  2. Return the card: “ANZ will only cancel the credit card when the account holder has returned it to ANZ cut diagonally in half (including any chip on the card) or has taken all reasonable steps to return it to ANZ”.
  3. Any additional funds will be returned by bank cheque.

NAB

  1. Call, write “or otherwise advise NAB in a manner acceptable to NAB”.
  2. Cut the card diagonally in half.
  3. Additional funds will be returned by bank cheque. NAB will charge its “usual fee” for issuing the cheque. Cash out is only available for amounts under $5.

Westpac

  1. Call, write or visit a Westpac branch.
  2. Promise to destroy the card.
  3. Additional funds are paid by bank cheque or directed into another account by direct debit.

CBA

No instructions are provided for card cancellations in the CBA credit card ‘conditions of use’ document. Customer service representatives instructed CHOICE to call the credit card team to cancel, which can only be contacted Monday to Friday, 9.00am–5.30pm.

Chasing fees and interest

“In the age of online banking if defies belief that ANZ, NAB, Westpac and Commonwealth all require you to call or email them when seeking to cancel a credit card,” says CHOICE head of campaigns and policy Erin Turner.

“It seems clear that the big banks’ ‘go slow’ on card cancellations is about protecting revenue from interest and fees, with data showing the big banks slug consumers with an average annual fee of $146 compared to just $58 through a mutual or customer-owned banks.

“Unfortunately, getting stuck paying excessive credit card interest is only one of the traps consumers face, with many of us paying excessive annual fees when we fail to cancel a card.”

The national collective credit card debt hovers at a staggering $32 billion or so at the moment (about $4300 per cardholder). If you’re one of those consumers who’ve gotten in over your head, it’s generally a good idea to cancel the offending card once you’ve climbed out of debt.

That would be doubly true if you happen to have a card from one of the big four banks: CBA, ANZ, NAB and Westpac. Their standard interest rates are among the highest. And their so-called low-interest cards aren’t that much better – or at least not better enough.

Time For Some Straight Talk On Credit Card Rates

The ANZ move to cut rates on some of its cards will stimulate more discussion on the economics of the credit card business. It may appear a bold move, but we are not so sure.

Actually all the the various bank and ABA initiatives are not necessarily going to help to rebuild trust in the banks. Like a running sore, the ongoing exposure may well reinforce current negative consumer perceptions. A point event like a specific review might actually draw the poison more effectively!  And yes, there are major issues to address.

But, today we look at credit card economics. To do this we use the data provided by the RBA.  They show the number of card accounts (not the same as card numbers because some accounts will have multiple cards on them) has been growing, to approach 16.7 million accounts. The number of transactions on these accounts are also growing, with 241m transactions to December 2016.

The average value of a transaction has remained relatively static, with the average purchase around $120 and the average cash withdrawal around $380. But significantly the proportion of account balances which are accruing interest is reducing, with around 40% of accounts being cleared off each month. Households who can clear their cards should do so to avoid interest costs.

We see the monthly flows of new transactions and repayment match quite closely.

The 60% of balances which are revolving incur interest costs. The data shows despite cuts to the RBA cash rate, rates on both low rate and standard rate cards remain high, and indeed, some low rate cards have moved up recently. As a result the average interest margin between the cash rate and the charged rate is higher than it has ever been, on average close to 20%.  This puts the ANZ 2% cut on some cards into perspective!

So, now we know the proportion of cards which are revolving, and the margin, we can estimate the real net cost to the average revolving card holder. We estimate the typical account will incur a monthly interest charge of $57 each month they revolve, compared with $10 in 2003. In fact we see a stable cost until 2008, since when it has climbed substantially.  This is worth about $80m a month to the banks at the current margins.

To broaden the analysis, banks have also been slugging households with higher credit card fees. Again the RBA says, fees rose 6.6% in 2015 (last year of available data) and they took $1.5 billion in card fees in that year. In the past four years, card fees have risen significantly faster than inflation.

Finally, overall personal credit growth has fallen in recent times, as mortgage borrowing roar ahead. This is consistent with our observation that more households are repaying their cards each month.

Later we will look at the broader economics of cards, taking account of loyalty schemes and merchant fees.  Meantime you can read our earlier analysis of credit card economics by segment. But from a margin view, 2% is hardly a generous concession.

ANZ’s new credit card rate isn’t making the cut, say critics

From The NewDaily.

When you’re doing well, a little generosity is appreciated – except if it is too little, which is what consumer advocates and MPs are saying about ANZ’s surprise announcement that it will be trimming interest rates on its credit cards as of February 28.

And make no mistake, ANZ is doing very well indeed.

Last month it announced that profits for the most recent quarter had hit $2 billion, an increase of 31 per cent on the same period last year. More than that, ANZ Banking Group chief Shayne Elliott is upbeat about the burden of bad debts on his outfit’s books and recently scaled back estimates of that red-ink liability.

So given the ANZ’s strong profit result, they can afford to give users of its credit cards a break, right?

Absolutely, says CHOICE’s Tom Godfrey, who doesn’t see the reductions as anything but a very small bone indeed.

Those reductions should have been much larger, Mr Godfrey said, casting the cuts as a case of too little and too late.

“It’s an attempt by ANZ to try and take the heat off themselves and the other banks to show they’re responding to community concerns,” he said, adding that “the big four banks are just not competitive”.

Mr Godfrey noted that the best interest rates – those offered by the credit unions – are under 10 per cent, and he wondered where ANZ’s rival banks found the gall to charge “toxic interest rates” of “around 18 or 19 per cent or higher”. The best credit card rates available in Australia can be as low as 8.9 per cent.

More than 500,000 existing ANZ Low Rate accounts will benefit from the new rates, with the bank estimating that a typical consumer stands to save about $150 a year.

MPs take the credit

The government has praised the bank for the move, with Liberal MP Scott Buchholz saying ANZ has shown “commercial courage” in lowering its rates.

Malcolm Turnbull also claimed credit. Despite his government’s reluctance to conduct a Royal Commission into the banking sector, he said the newly-formed economics committee, before which the bank CEOs appear, had now provided real results.

“I am bringing the banks regularly before the house economics committee and they are being held to account for their actions and you are seeing real results,” Mr Turnbull said on Sunday.

Neither Mr Godfrey’s criticism nor South Australian Senator Nick Xenophon’s faint praise for the move ruffled the head of ANZ’s retail and commercial unit, Fred Ohlsson, who crowed that the reductions mean customers will have “the best rate available from any of the major banks or any of the regional banks owned by the majors”.

ANZ estimates that a typical consumer stands to save about $150 a year under the new rates.

And that’s the whole point, according to Senator Xenophon, who scoffed that ANZ customers have good reason to be even more miserly with their gratitude than the bank has been with its rate cuts.

“The gap between the official cash rate and credit card rates has never been higher,” he said.

“We really need to look at some form of either greater market competition, or the banks need to really explain themselves in gouging consumers in this way,” said Senator Xenophon, who has been a strong backer of Labor leader Bill Shorten’s call for a royal commission into the banking industry.

Mr Buchholz cited the grilling late last year of bank executives who were dragged before a parliamentary inquiry as a prime factor motivating Sunday’s announcement.

“We will have the banks appearing in the next fortnight in Canberra, along with the Australian Banking Association, where I will continue to take a similar line of questioning with those banks that haven’t taken the commercial choice to shift their interest rates yet.”

ANZ To Cut Some Credit Card Rates

ANZ has today announced it will reduce purchase interest rates on two credit cards by up to 2.00%pa, which is the lowest these rates have been for customers since 2003.

Effective Thursday 23 February, ANZ will reduce the purchase rate on its Low Rate Platinum card by 2.00%pa to 11.49%pa, and its Low Rate Classic card by 1.00%pa to 12.49%pa.

More than 500,000 existing ANZ Low Rate accounts will benefit from the new rates with the majority of those customers who pay interest every month to save about $150 a year.

Announcing the changes, Group Executive Australia Fred Ohlsson said: “Our customers with Low Rate accounts are typically middle income Australians who predominantly use their credit card for everyday household purchases, such as groceries.

“We’ve listened to customer feedback about credit card rates and decided our Low Rate customers would benefit most from a rate reduction as they are more likely to have ongoing debt from month to month. These changes mean they will have the best rate available from any of the major banks or any of the regional banks owned by the majors,” Mr Ohlsson said.

ANZ’s Low Rate Classic card also offers the lowest annual fee of the major banks for similar cards at $58, and has a minimum credit limit of $1000 making it accessible to a wide range of customers.

The Low Rate Platinum card has an annual fee of $99 and a minimum credit limit of $6000. It also comes with a range of insurances, including overseas travel and medical, and up to nine additional card holders at no extra cost. Both cards feature up to 55 interest free days on purchases.

Key crossbench senator Nick Xenophon welcomed the announcement, but said the banks needed to do more to address the cost of credit cards.

“The gap between the official cash rate and credit card rates has never been higher and I think that we really need to look at some form of either greater market competition, or the banks need to really explain themselves in gouging consumers in this way,” he told ABC TV on Sunday.

Lost or stolen cards replaced instantly with ANZ digital wallets

ANZ today announced its customers can continue to use their digital wallets when they report their card as lost or stolen with a new service that automatically updates their replacement card details.

As soon as a customer calls to report their debit or credit card as missing, ANZ puts a stop on the original card and automatically uploads the new virtual card details to the customer’s digital wallet.

ANZ Managing Director Products Australia, Katherine Bray said: “Our customers report about 670,000 cards as lost or stolen each year and we know waiting for a new card to arrive can be a real inconvenience.

“Now our customers can keep using their digital wallet, whether it’s Apple Pay or Android Pay, to make purchases while they wait for the new physical card to arrive in the mail.

“For many customers their smartphone is now the primary way they do their banking, including making purchases, so we’re working hard to keep improving their mobile experience with changes like this.”

ANZ has also made it possible for customers to keep their existing Personal Identification Number (PIN), provided it hasn’t been compromised, meaning less change with the same high level of security.

ANZ is the only major Australian bank to offer both Apple Pay and Android Pay with about 8.3 million transactions made across the bank’s digital wallets last year.