Legislation simplifies how credit card interest is calculated to protect Australians

Credit card users in Australia will no longer get unsolicited offers of credit limit increases and enjoy a simpler process of calculating interest after legislation passed through parliament on Thursday. Unfair and predatory practices will be scrapped, and cancelling plastic cards will not be a hassle.

The Turnbull government has championed reforms to protect Australians, which also include requiring credit card providers to have online options to reduce credit limits or cancel cards. The change is expected to start in January 2019.

From July 2018, the reforms will require affordability assessments to be based on a consumer's ability to repay the credit limit within a reasonable period. The new legislation will help protect Australian customers from any predatory behaviour that seeks to make money from people's misfortune.

These are the first phase of reforms outlined in the government's response to the Senate Inquiry into the credit card market. It intends to put more power into consumers’ hands.

The reforms will help materially boost competition in the banking sector as it allows small lenders to call themselves banks. All lenders with ADI licence can now market themselves as bank regardless if they have bricks and mortar branches or exclusively operate online. It means over 60 current Australian lenders and credit unions will have the chance to call themselves banks.

The change is expected to attract challenger banks and new lenders to enter the market. It can result in better choices for Australians, putting downward pressure on the cost of banking products and loans.

The Treasury Laws Amendment (Banking Measures No. 1) 2017 boosts financial stability by giving the Australian Prudential Regulation Authority (APRA) a reserve power over the lending activities of non-banks. It makes clear APRA's roles and responsibilities under the Banking Act 1959.

The bill accompanies the Banking Executive Accountability Regime by the Turnbull government, which brings improved accountability to Australian banks with tough new rules for banks as well as their executives. APRA's crisis management powers are strengthened with the Crisis Management Bill.

Meanwhile, customers can no longer use their CommBank credit cards to purchase virtual currencies. "Due to the unregulated and highly volatile nature of virtual currencies, customers will no longer be able to use their CommBank credit cards to buy virtual currencies," the bank said in a statement. Customers can still buy and sell virtual currencies with other CommBank transaction accounts and their debit cards.