From the continent that brought cost accounting to credit card interchange comes regulatory efforts to push the responsibility of repayment back to card issuers and away from cardholders. The regulation seems to be well beyond US mandates that require underwriters to assess the ability to repay rule used for credit cards and mortgages under Regulation Z. Australian efforts to enact the regulation began on July 4, 2018, aimed at having a final document ready for implementation by the end of August.
As this Australian trade journal reports,
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REP 580Credit card lending in Australia looked at 21.4 million credit card accounts open between July 2012 and June 2017.
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The regulator found that there were over 14 million open credit card accounts as at June 2017, with outstanding balances totalling (sic) almost $45 billion.
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…assessments would be based on the consumer’s ability to repay the credit limit within three years, and this period would apply to all classes of credit card contracts.
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The rating agency added that smaller lenders, with relatively larger exposures to credit card lending, would be most affected by the reforms, and made particular reference to Citigroup and HSBC Bank Australia’s exposure to such loans, which it noted make up 36.2 percent and 4.8 percent of their loan books, respectively.
Well-intentioned, no doubt, but the lending risk places a severe response to the underwriting process; if the household budget is unable to complete payoff within three years, the debt may be classified as “unsuitable”. Unsuitable means that the lender “would be a breach of the responsible lending obligations. “ And, in many cases, the debt might be discharged without having the account file bankruptcy.
Tastes worse than a vegemite sandwich.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group