Understanding the July 2012 Credit Card Reform in Five Simple Steps

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This is a guest post by financial writer Paul Groberts. His post is about big changes going on with financial reform in Australia. 

We’re living in a day and age in which an increasing number of consumers are choosing to liquidate their debt and do away with their credit cards. However, recent developments in local credit card policies and regulations are heralding a new age in the use of plastic. Authorities have had the credit card reform in the making for quite some time and it eventually came into force on July 1, 2012. Official information on the precise prescriptions and implications on the reform can be easily accessed online, at BankingReforms.gov.au. However, no matter how clear-cut and straightforward it all may appear there, further explanations are always in order and welcome, for the day-to-day credit card user. If you want to learn what this recent development entails and how it will affect you, the regular holder of a banking credit card, read on, to understand the reform in three simple points.

First off, the much-touted reform is essentially geared at improving handling conditions and transparency on the part of the end-user. This means that the key fact sheet you receive when you sign up for a new credit card will have to use a standard format, making essential information easier to follow, grasp and understand. No more fine-print, no more tricky wording, in a nutshell.

Secondly, there are major changes afoot with respect to going over your credit card limit. Specifically, the lending institution will have to receive your expressed agreement on being charged a fee for over-limit services. What is more, the bank or financial service provider will be mandated by law from now on to inform you when you surpass your credit limit. At that point, you will be presented with two options: either continue to use the card or pay off a part of the debt first.

The third point is perhaps the most hotly debated, since it refers to direct repayments. According to the new rules, these will be directed to the most expensive part of your credit card debt. The Government website states that this will make it easier for users to reduce their debt and it will allow them to do so at a speedier pace. It’s worth noting that this particular rule strictly applies to new users, who have had their cards issued post-July 1. Check the issuing date on your card, to make sure whether or not this applies to you as well.

Fourth on the list, control over the credit limit has now been entirely turned over to the user. You can decide for yourself what that limit is and then inform the bank of it. We searched for various types of credit cards online, in order to understand this change and ran an online comparison on those types at BankWest.com.au (http://www.bankwest.com.au/personal/credit-cards/compare-credit-cards). What has changed since July 1, is that providers now have to inform you of the exact workings of their interest-free initial offer, making the whole process of signing up for a credit card much more transparent and unpleasant surprise-free down the line.

Finally, one of the most welcome changes in credit card regulations refer to one’s monthly statements. From now on, these statements will include the period of time required to repay your current debt, if you only continue to make minimum payments. The main consequence of this change is that you’ll have an easier time planning your debt reduction, as well as balancing the rest of your expenses.

All in all, credit card ownership seems to have gotten a whole lot more user-friendly and easier to handle. As with anything, transparency and clarity are surefire ways to improve on an existing situation. Besides, since credit is one of the fueling forces of any economy, this might just spell better times for Australia’s personal finance sector.