ASIC has registered ASIC Credit (Unsuitability – Credit Cards) Instrument 2018/753 which prescribes a period of three years for responsible lending assessments for new credit card contracts or credit limit increases from 1 January 2019.
This means that from 1 January 2019, credit licensees will be required to assess whether a credit card contract or credit limit increase is unsuitable for a consumer based on whether the consumer could repay the full amount of the credit limit within three years. The revised obligations apply to licensees that provide credit assistance and licensees that are credit providers for both new credit card contracts and credit limit increases under existing credit card contracts. Existing civil and criminal penalties that currently apply to breaches of the responsible lending obligations will apply to breaches of the revised obligations. Existing infringement notice powers will also apply. Background.
ASIC has set out its reasons for its decision to prescribe the three year period and the commencement date in Report 590.
Consumers will still retain the flexibility to make low minimum repayments on credit cards.
The three-year period will apply to all classes of credit card contracts, whether or not there are different periods for different classes of credit card contracts, credit limits or interest rates.
Assumptions relating to existing credit card contracts with other credit providers
When assessing whether a credit card is ‘not unsuitable’ for a consumer, ASIC expects that:
(a) the credit provider will assume the consumer is being charged interest over the three-year period and that the highest rate of interest applicable under that contract be applied in the calculations; and
(b) where a consumer has existing credit card contracts with other credit providers, the credit provider will assume that the consumer is making repayments on those existing contracts sufficient to repay the limit— including interest—within three years (rather than the minimum repayment amount required under those contracts).
ASIC also says that when calculating the repayments made under existing credit card contracts, it is reasonable for a credit card provider to make assumptions that reflect the highest rate that is reasonably likely to apply on that other card, given the state of the market at that time.
Must account-related fees be included in the assessments?
ASIC says that it is not necessary to always include account-related fees in the assessments. ASIC has, however, recommended that credit providers assume that interest is accruing at the highest rate that applies under the contract. Where credit providers are aware of fees that would significantly affect the amount of time required to repay the limit, ASIC says it would be good practice to include them in the assessment.