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Banks should take into account a card user's ability to pay it off

The 1970s saw the introduction of the modern credit card. Back then, the entire balance had to be repaid every month and limits were small.

But today's cards are a whole lot more dangerous than their '70s counterparts. This little piece of plastic lives in the wallets of 12.3 million Australians.

It does appear that banks have become addicted to selling us expensive credit. The result? Australians are now struggling with over $45 billion in credit card debt.

ASIC has just released a report on credit cards that shows some financial institutions continue to impose tricky repayment structures that have been banned since 2012. It found that four credit providers – American Express, Citi, Latitude and Macquarie – are charging their customers “more interest than they should, and their conduct is out of step” with other credit providers.

Consumer Action's own statistics reveal that credit card debt is one of the main reasons people call their phone financial counselling service – the Victorian branch of the National Debt Helpline. Each week someone will call in with $100,000 (or more) in credit card debts.

This can happen easily because the banks assess a customer's ability to afford a credit card on the minimum repayments, which can be as low as 2.5% of the amount owed, not the credit limit. The results can be devastating. Karen Cox, from Financial Rights Legal Centre, recently told the royal commission of an elderly woman who had been paying off the same $1000 since the 1990s.

It has become far too easy for the banks to extend credit to people without regard to their ability to pay it off.

That's why ASIC has proposed to set card credit limits to a level that can be reasonably repaid within three years. This is a commonsense reform that will stop credit cards becoming a life debt sentence.

No one wants to be laden with unaffordable credit card debt. We should demand more from the financial institutions that we trust to look after our money and provide us with credit responsibly.

Gerard Brody, CEO, Consumer Action Law Centre