Show Notes
Michael Saadat, ASIC's Senior Executive Leader - Deposit takers, Credit and Insurance, joins the podcast to discuss ASIC's review into the credit card market in Australia. Read the Report Consultation Paper media release Review into Credit Card lending media release Transcript below: ----more---- Lara Heilbuth: Hello, and welcome to the official podcast of the Australian Securities and Investments Commission. In today's episode we'll be discussing ASIC’s review of the credit card market. My name is Lara Heilbuth and with me this time around is Senior Executive Leader of Deposit Takers, Credit and Insurers at ASIC, Michael Saadat. Michael, thanks very much for your time. Michael Saadat: Thank you Lara. Lara Heilbuth: So, ASIC has had a look at the credit card market – can you describe the market for us? Michael Saadat: Yeah sure thing. We’ve done a really big review of the credit card market and the report that we’ve published has lots of really interesting information in it. But just to give you some of the highlights. What we found as part of this review is that there were over 14 million open credit card accounts in Australia which has increased of over 300,000 since 2012. On those accounts, there’s about $45 billion in outstanding balances; and approximately $31 billion in balances on credit cards that is incurring interest charges. Consumers were charged over $1.5 billion in fees each year, including annual fees, late payment fees and other amounts for credit card usage. Lara Heilbuth: And what has ASIC’s review focussed on? Michael Saadat: We had 3 main focus areas as part of our review. The first was consumer outcomes. We wanted to identify the debt outcomes for consumers from their credit card products over time, with a particular attention to consumers who are in arrears, who carry debt at a high interest rate for a long period, or repeatedly make low repayments. Secondly, we wanted to look at balance transfers. We looked at when and how balance transfers are taken out, the repayment experience and their effect on credit limits and debt levels over time. And thirdly, we wanted to assess the effectiveness of key law reforms that were put in place a couple of years ago, including things like requirements for standardising how payments are allocated to outstanding balances. Lara Heilbuth: You mentioned you looked at consumer outcomes, how bad is credit card debt in Australia? And are consumers using credit cards wisely? Michael Saadat: What we found is that about 18% of people with a credit card are struggling with that credit card. And what we mean by that is that they are either missing payments, carrying a lot of debt or repeatedly repaying small amounts. This includes almost 550,000 people in arrears, an additional 930,000 in persistent debt and an additional 435,000 people who make repeated low repayments. And the reason we’ve looked at this group of consumers quite closely is because credit card products can be quite expensive and if you use a credit card in a way that it is not designed then you can end up paying quite a lot of interest over quite a long period and you can take a very, very long time to pay down your debt. And what we did was we identified that there were three groups of consumers at the greatest risk of falling into problematic debt, and that included young people who were more likely to have failed to make repayments on their credit cards; people with multiple cards were more likely to be struggling with credit card debt; and people who transfer balances are also at greater risk. Lara Heilbuth: Ok so balance transfers have been described as a debt trap. Are they? Michael Saadat: We looked at balance transfers quite closely as part of this review. Balance transfers allow consumers to transfer some or all of their credit card debt from one card to another. And through the review we looked at over 1 million balance transfers. We looked at balance transfers in detail because the Senate In
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