Australian Banks To Face Fines For Unsolicited Increases In Credit Limit Offers
Under proposed revision of lending laws, Australian banks will receive a fine of as much as $220,000 every time they raise credit limits of their credit card customers without having first received a request from the customer that was not solicited by the bank.
Under National Consumer Credit Protection legislation employees of banks run the risk of criminal prosecution for breaching a law which bars banks from offering higher credit limits to their card customers without having solicited permission of the card holder. The law also prevents lenders from allowing their credit card customers to exceed their credit limit.
Australian banks have complained that the new law is draconian; however the Gillard government has gone ahead and introduced the legislation in parliament anyway.
Steven Munchenberg, chief executive of the Australian Bankers Association on Sunday said that the new law “goes way over the top”.
“At this point any bank that even writes to an existing customer and suggests they might like to apply for an increase in their credit limit could be in breach of this legislation. There will be people with an irregular income or who are not in regular employment who will find it harder to get credit. The banks will be nervous about providing credit for fear that if a person subsequently gets into debt trouble the bank will become liable. The banks are going to be a lot warier about lending to them and there is a danger people will be forced into an unregulated market.” Mr. Munchenberg said.
The new legislation if passed, will bar lenders from bombarding consumers with unsolicited “tick the box” offers for higher credit card limits and will be implemented by July 1st 2012, giving banks enough time to prepare.
Under the new law, lenders will only be able to offer credit card customers higher credit limits only if those customers have first given the bank permission to be approached. Banks will no longer be able to authorize payments that exceed the borrowers credit limit by over 10 per cent unless the increase in limit was pre-arranged, and fees for exceeding the credit limit within the 10 per cent buffer will be banned as well the imposition of higher interest rates.
Any breaches will attract 2000 “penalty units” – equivalent to a $220,000 fine – as well as criminal sanctions for bank staff who authorise the breaches.
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