ASIC has announced that as a result of concerns raised by ASIC, American Express Australia Limited has agreed that from 28 February 2012 it will change its approach to the charging of a higher ‘default’ rate of interest to credit card customers who have defaulted in their payment obligations.

According to ASIC “AMEX’s policy was to increase the interest rate on the whole balance where a card holder had defaulted in making their minimum monthly repayment three or more times over 12 months or on one repayment for more than 3 months. The increase in rates for affected customers was up to 6% for a 12-month period. ASIC was concerned that this policy was potentially in conflict with the restrictions on the charging of default interest under the National Credit Code.”

It is not clear whether the rate was only increased for borrowers actually still in default or included those with a history of default. It is also not clear whether the increase applied to the whole of the balance or only the amount in default or whether it was simply a rate increase permitted under the contract following a review.

Section 30 of the National Credit Code permits a credit contract to provide for a differential rate according to whether the debtor is in default under the contract if the higher rate is imposed only in the event of default in payment, in respect of the amount in default and while the default continues.

Disclosure of the rate and how it is applied must be made in accordance with section 17(11) of the National Credit Code.