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Credit card reforms win support

New credit card laws introduced by the corporate regulator will reduce the number of Australians in financial hardship, a consumer law group says.

Under new requirements introduced by ASIC and set to take effect from January, 2019, credit card users will only be given borrowing limits they are assessed as being able to repay within three years.

Consumer Action Law Centre senior policy officer Katherine Temple said the move was a win for Australians with credit cards.

"We hope this reform will lead to less people getting credit cards they can't afford and less people ending up in financial difficulty because of excessive credit card limits," she said.

ASIC said the three-year period struck an appropriate balance between preventing consumers signing up to unsuitable credit card contracts and ensuring people have reasonable access to credit.

The new law means that if it was likely a consumer would be unable to repay the credit limit on their card within three years, the application would have to be rejected.

An ASIC report released in July found more than one in six consumers are struggling with credit card repayments and said lenders could do more to help avoid persistent debt.

Ms Temple said there had been systemic irresponsible lending from the banks and credit card providers.

"What we have seen, particularly out of the royal commission, is a problem with compliance with existing obligations," she said.

"Monitoring and enforcement will be key to making sure this reform works as intended."

The consumer law group also wanted lenders to be more sympathetic to borrowers who fall into unforeseen problems with repayments.

"The new banking code of practice has some provisions in there about helping people with financial difficulty and we think that's a step in the right direction," Ms Temple.

"It's a combination of ensuring responsible lending at the beginning but also responding appropriately if someone runs into trouble once they've taken out a loan as well."

Ms Temple said financial trouble which comes with irresponsible lending leads to consumers resorting to high-interest, short-term loans.

"Hopefully we'll stop that cycle by making sure lending practices are responsible from the very beginning," she said.

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