A new report by the Australian Securities and Investments Commission (ASIC) has revealed a surge in credit card debt in the country, with 18.5% consumers found facing financial difficulty due to such debt.
The report involves review of 21.4 million credit card accounts that were opened between July 2012 and June 2017.
Outstanding balances on these cards were found to be almost $45bn, with $31.7bn incurring interest charges.
ASIC warned that credit cards with lucrative offers could serve as a “debt trap”. The report found the transfer of credit card balances to a new card minimising debt for certain customers but leading to a 10% increase in more than 30% of the cases.
According to the regulator, switching to a card with a lower interest rate could have helped consumers in saving nearly $621m in interest during 2016-2017.
ASIC deputy chair Peter Kell said: “Only a handful of credit providers take proactive steps to address persistent debt, low repayments or poorly suited products. There are a number of failures by lenders to act in the interests of consumers and we expect them to respond swiftly to our findings.”
The report further revealed that although updated regulations in 2012 resulted in decreased interest charges on credit card debt, the retention of old rules by Citi, Latitude, American Express and Macquarie for cards issued before June 2012 made around 525,000 consumers pay more interest.
To address this concern, Citi and Macquarie agreed to cease the older repayment allocation methodology from 2019, and American Express is planning to follow the same.
In addition, ASIC proposed a new reform to ensure responsible lending assessments for credit cards.