In the wake of the GFC (global financial crisis) consumer credit laws have become tougher and more defined. In essence what this means is that consumers can enjoy better terms and conditions than pre-GFC. Much has been said and written when our nations came tumbling down. The USA suffered more so than Australia but both nations grapple with their very own post-recession economies – even if the government will have us believe otherwise.
What is the Purpose of Consumer Credit Laws?
The main purpose of these laws is to protect you, the consumer. Without these laws banks and lenders in general would simply have free reign as to how to structure their mortgage and credit lending contracts. By putting strict guidelines in place consumers can choose loans and credit cards with more confidence. But having said this, you still want to read every contract very carefully. Even though terminology has been rewritten to make it easier to understand and grasp by most consumers, you still need to read everything very carefully.
Australia – NATIONAL CONSUMER CREDIT LAWS
The government of Australia has introduced their Fairer, Simpler Banking policy to offer consumers like you better deals on their credit lending. For example:
- Your bank no longer charges you those pesky over-the-limit fees, unless otherwise specified;
- Lenders of credit cards will have an obligation to allocate repayments to higher interest debts before they can assign them to other debts;
- Interest rate charges are strictly regulated by the law, meaning they have to be charged on the industry-agreed standard;
- You now have more power to nominate your own credit limit, as long as you can back it up with your income/money;
- You no longer have to accept unsolicited extension on your credit limit, unless you have previously agreed to do so;
- The credit law clearly defines the risks of repaying only the minimum payments each month on your card;
- A clear summary of each card’s features must be provided by the lender before you sign a contract.
Further to the above, Australian consumers can also enjoy better protection on reverse mortgages. This is done with the Governments Delivering for Seniors policy.
USA – Credit Card Accountability, Responsibility and Disclosure Act
Since Obama became President of the United States he has introduced a new credit legislation to help protect cardholders from tricky contracts, and traps imposed by lenders. Having received a fair share of praise from the people of America the new legislation might be better than ever, but it still has certain pitfalls. Some of the things that have changed are:
- New laws about credit interest rates;
- Lower fees for over-the-limit penalties and fairer rates;
- Percentage rates are regulated for 12 months once a customer signs the contract;
- Better protection for youth when they apply for credit;
- Restricted sub-prime fees to protect consumers with bad credit;
- Easier-to-understand terminology;
- Opt-in for over-the-limit expenses which means consumers must approve transactions before they can overspend on their cards
On the Downside
Not everything about the new US credit legislation is positive though. Some of the new rules are likely going to affect consumers in a negative way. Of the most concerning are:
- Higher annual card fees on some cards;
- Shortened grace periods to help banks recoup some of the lost revenue from past days;
- An increase in general fees for cash advances, balance transfers or late payments as these are not regulated by the new legislation.
Are These Laws Really Protecting the Consumer?
Many consumers are careful to trust these new credit card reforms; whether they are in the USA or in Australia. Fact is that for years we have been bled dry by lending institutions. They robbed the people with the worst credit of their last penny with their crazy fees and charges.
For years we have ranted, rebelled, complaint, yet accepted the situation because we had no other choice. If you were in financial debt you were basically at the mercy of lenders.
Same Laws – Different Place
Well, at first you can be forgiven to think that. When you look at both reforms in this article you will see that both countries have similar reforms in place to help protect consumers. After having read both of them in more detail I have come to the conclusion that Australian consumers have a slightly better regulated system. To be fair though, I believe that any bank would always look for ways to recoup lost revenue, and/or increase their bottom line wherever possible. It’s the nature of doing business.
How You Can Be the Winner, Regardless Where You Live
If you want to avoid any and all instances of debt the best thing to do is to become credit savvy. Here are some ideas and suggestions to keep in mind:
- Never trust credit card reforms to act in your favor only. Do your own research and base your decision on first-hand knowledge.
- Don’t spend more money than you make. While this might be a moot point it can’t be stressed enough for the millions of consumers who rack up debt as if it’s a sport.
- Pay off your biggest debt first – the idea is to lower your interest as quickly as you can to avoid the compounding effect.
- Devise a budget and try to stick to it.
- Get independent financial advice.
- Have fewer credit cards: look closely at offers that sound too good to be true because usually they are; pay good attention to the APR and fees of each offer; don’t be tempted by cash advances – these will suck you dry before you can say “shoot.”
All in all, using common sense when looking at lending money will always be your best ally. Lend wisely and you never have to worry about these credit card reform laws.
This article was written by personal finance writer Timothy Ng from Sydney, Australia. He is genuinely passionate about helping people compare credit cards and helping them through researching to find the best credit card.
{ read the comments below or add one }
Someone call the WAAAAAMbulance. People borrowing money were actually charged to do so.
You know how much money people who didn’t borrow money to spend lost? Zero. Zip. Nada-one-thin-dime.
Quit yer whinin.
I agree. Actually educating consumers about credit cards, debts, and budgeting should be a higher priority. It’ll make them more aware of how credit card companies operate, so it’s easier for them to identify the “tricks” lenders come up with no matter how these tricks change with time (and new rules). Other than extreme cases, most of the burden of making sure they don’t fall victim to “predatory” credit card lending should be on the consumers themselves.
I don’t think leaving the credit card companies free to have the contracts they want is a problem, since we are free to say yes or no. The regulations would do better if aimed at making sure we know what we’re signing. Beyond that, why not leave things open for new ways (and what is the problem with late fees and over-the-limit fees? Just pay on time and watch your expenditures.).
Australia’s a major win in the finance category right now. Their dollar is equal to the US dollar and they’re getting really high interest rates on savings (5-8%). And their government does a much better job of actually protecting its citizens since they don’t allow politicians/regulators to be bought by campaign contributions like we do in the US.