Credit card reforms

If you were to look at MoneySmart’s debt clock, you would see that Australians currently owe over $30 billion on credit cards while paying in excess of $5.6 billion in interest every year. This amount of money boils down to nearly $4,400 in average credit card debt and over $750 in annual interest per person (with the interest rate being between 15 and 20 per cent).

Alarmingly, that debt clock keeps ticking away, proving that credit cards can indeed be a dangerous trap when they are not paid off on time. The above overall debt figure may be well short of the record Australian credit card debt of $49.3 billion reported by the RBA (Reserve Bank of Australia) in 2011; a fact that is cold comfort for anyone living with credit card stress.

It’s hardly surprising, then, that the Government felt the need to propose another series of credit card reforms to help alleviate the nation’s credit card debt in 2016. And only recently, major banks like ANZ cut interest rates on some of their credit cards by up to 2 per cent. We’ll look into those changes in some more detail in the below sections.

How do credit card reforms affect me?

For the most part, the reforms were good news for credit card holders who applied for their cards before 1 July 2016.

When you pay your credit card bill nowadays, the higher interest charges will be paid first and the lower second. In addition, you now have the option of targeting your repayments at a particular credit card transaction.

Prior to the reforms, it worked like this: if you had unpaid charges left on your card, they naturally accrued more interest with time – but after you’ve paid your monthly credit card bill, your lender would direct your money towards transactions with a lower interest rate, such as balance transfers, purchases and promotions. Transactions that attracted higher interest charges were left until the very end.

In other words, if you’ve made multiple transactions on your credit card, the first transaction to be paid off will be the one that amasses the highest interest rate rather than the lowest.

What exactly is a ‘credit card surcharge’?

credit card surcharge is an additional fee charged on your debit, credit or prepaid card by merchants when you make a purchase with one of these cards.  The idea behind it is to assist businesses in recouping costs associated with accepting card payments.

As of 1 September 2016, the RBA has banned fixed-dollar surcharges across major businesses – meaning credit card users won’t be hit with excessive surcharges when they’re making credit card payments.

While merchants are still able to impose a cost-based surcharge on card payments, those surcharges will be limited to the processing fee – or the amount it costs the merchant to accept a particular card for a transaction. And should a breach resulting in excessive surcharging occur, the ACCC (Australian Competition and Consumer Commission) has Government-given powers to start an investigation.

When the second stage of the changes comes into effect on 1 September 2017, other merchants will be expected to comply with the new regulations. As small and medium-sized businesses bear the cost of high interchange rates on premium Visa and Mastercard products, the credit card surcharge reform will aim to improve their competitiveness.