As the busiest time of the year looms for retail sales FBAA managing director Peter White has warned that changes coming into effect on January 1 will impact credit card holders, and eventually anyone applying for a mortgage or personal loan.
“The changes could make it even harder to obtain credit, potentially pushing house prices down further and hitting consumer spending and the broader economy.
“I have been in Canberra this month arguing against these changes in their current form. I think there is a general lack of awareness about the serious impact this will have on the deemed capacity of a borrower to repay their debts,” Mr White said.
ASIC has introduced new assessment criteria to be used by banks and credit providers when assessing the serviceability of new credit card contracts or credit limit increases for consumers.
Whenever a loan provider is assessing a mortgage application, or any application for a loan, they must take into account the ability of the borrower to pay the entire credit limit of every card the applicant has, over a period of three years.
If a card holder has three cards each with a $10,000 limit, the serviceability has to include the borrower’s ability to pay back the full $30,000 in a three-year period, as well as being able to service other loans. This applies even if the applicant has a zero balance.
Under the changes credit providers will also have to assume an interest rate that is two per cent above the highest rate in the market which is currently 22 per cent.
Previously the card holder simply had to show they could repay their credit card based on three per cent of the limit each month as the minimum repayment.
Mr White said the ruling is unfair on credit card holders who diligently pay their balance off every month, or never use their card.
“I think ASIC has got this one wrong and I have told them so in a formal submission. I have also met with relevant ministers and I believe this will be reviewed because the Government now understands the implications of this change on our retail economy and the housing market.”
In response to concerns raised, ASIC has deferred the introduction of the higher serviceability on credit cards when assessing all other loans including mortgages until July 1, 2019.