ASIC has today issued a consultation paper (CP 303) which proposes responsible lending assessments for credit cards be based on whether the consumer can afford to repay the credit limit within three years.
This proposal follows recent reforms to the regulation of credit card lending. Under the revised responsible lending obligations, a credit card contract or credit limit increase must be assessed as unsuitable if it is likely that the consumer would be unable to repay the credit limit within a period prescribed by ASIC.
The purpose of this new reform is to make sure that consumers can afford to repay their credit card debts within a reasonable period. Consumers will still retain the flexibility to make low minimum repayments on credit cards.
ASIC is proposing a three-year period to strike an appropriate balance between:
preventing consumers from being in unsuitable credit card contracts; and
ensuring that consumers continue to have reasonable access to credit through credit card contracts.
The new reform will apply to credit licensees providing credit or credit assistance in relation to both new and existing credit card contracts from 1 January 2019. ASIC will make a decision about the period to prescribe following the consultation process.
