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Change to way credit cards are assessed

Consumers will only be given credit card limits they could repay within three years as part of moves to protect them from falling into a debt trap.

Banks will have to use the three-year period to assess applications for new credit cards or increased limits on existing cards from January 2019.

If it was likely a consumer would be unable to repay the credit limit within that period, the application would have to be rejected as being unsuitable for them under revised responsible lending obligations.

The financial services regulator said it prescribed a three-year period to strike an appropriate balance between preventing consumers from being in unsuitable credit card contracts and ensuring they continue to have reasonable access to credit.

The Australian Securities and Investments Commission confirmed the period on Wednesday after seeking feedback.

"We expect there will be only a small proportion of consumers who either cannot access a credit card at all due to the prescribed period, or who cannot reduce their existing credit card debt to a level below which they could switch to a different provider if they chose," its report said.

The move, which is part of wider credit card reforms, is designed to ensure consumers can afford to repay their credit card debts within a reasonable period.

Consumers will still be able to make low minimum repayments on credit cards.

Lenders currently assess whether a consumer could afford to repay a fixed proportion of the proposed credit limit every month, most commonly three per cent.

An ASIC report released in July found credit cards offer flexibility but can present a debt trap for consumers.

Austrlaian Associated PressBack to Breaking News

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