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Legislative Assembly for the ACT: 2002 Week 10 Hansard (29 August) . . Page.. 3086 ..

MS DUNDAS (continuing):

for credit card users who have been living on credit and getting progressively further into debt. I also believe that the proposed change would be simple to implement and, with Ms Tucker's proposed amendments, possibly even simpler.

National statistics show that the amount outstanding on credit cards continues to rise on a per capita basis. The average Australian household now pays more than $350 interest on credit cards each year. But this conceals the amount that most indebted households pay. Only two-thirds of households have a credit card, and only half of these households ever fail to pay their balance in full. This means that about a third of households Australia-wide are paying much more than $350 in interest each year, and many of these households are struggling.

The rise in credit card spending has been partly driven by card loyalty schemes, which encourage people to put as many transactions as possible on credit. The result is that many people end up spending much more than they hold in cash, and card users start spending their income a couple of pays ahead because of the interest-free period on credit cards. This practice may work well while income continues to flow, but when incomes drop due to illness, unemployment or a relationship breakdown someone who is managing their debt load may quickly end up in a crisis. The lower the outstanding credit balance they have to pay, the less severe this crisis will be.

The Banking Association has argued that there was no correlation between unsolicited credit card limit increases and bankruptcy. However, I believe that bankruptcy figures tell only part of the whole story. I know many people struggle to repay their credit card debts so they can reduce their credit card limits. What invariably set them down the path to problem debt in the first place was unsolicited pre-approved credit limit increases, combined with an unfortunate lack of budgeting.

I would have preferred that the bill prohibit letters to card holders that invite them to apply for more credit, but the terms of the bill as presented are a step in the right direction. The fact that a credit provider will have to ask a credit card holder for information about other debts before increasing a credit limit may be enough to discourage a person from applying for further credit where they have been rapidly increasing their debt load.

The Banking Association argued that metrics, which is apparently the term for statistical profiling of clients, is the most economically efficient way of determining who has the ability to manage a higher credit limit without defaulting on repayments. This may be true, but I cannot see that the banks will have to cease use of statistical measures to determine initial eligibility status for limit increases. Only when a person satisfies a metrics test would the bank need to further investigate the applicant's ability to meet higher potential debt repayments. Possibly a person who cannot manage that debt will then refuse the higher limit.

I do not support increased business costs that do not have a commensurate social benefit. In this instance I think the additional compliance costs will produce sufficient benefits to justify the impost. So I am willing to support this bill.

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