On July 1, Australian reforms come into effect banning banks from luring their customers into raising their credit limits. Because of this, various banks, including HSBC, ANZ, BankWest, and the Commonwealth Bank are sending messages by SMS, internet accounts or post trying to get their existing customers to agree to raise their credit card limits before the deadline.
Bank officials from ANZ say that they know the upcoming reforms will affect their business, they just don’t know to what extent. They have spent money on getting the message about the new rules to their customer base and giving them the opportunity to consent to future credit increases. BankWest has also admitted to contacting some of their customers to offer them credit increases as well.
The reforms, put in place by the Federal Government, will make it illegal for banks to send credit increase offers to customers unless they have consented beforehand. Over the limit fees will also be eliminated unless there is customer consent. Customers will still be free to ask for a credit limit increase if they feel they need one.
Many financial experts believe that these changes have made banks nervous about their profit margins, so this is why they are trying to do something about it before the reforms go into effect. Banks stand to lose about $1 billion annually just from the banning of the over the limit fees.
Some banks are trying to recoup this money by raising the annual fees on personal credit cards. Others have even been found trying to mislead their customers by telling them that the new reforms will make it impossible for them to raise their credit limits unless they consented to it immediately. Many companies are also reducing the introductory rates on balance transfers, possibly in an attempt to try to secure those customers before the reforms and lock them in as future customers.
While many of the various bank’s actions could be seen as understandable reactions made in panic, the Commonwealth Bank is taking the reforms seriously and plans to comply fully with the new rules. A spokesperson for the bank explained that the reforms “ensure [that] financial institutions lend prudently” and will help to keep customers from financial hardship by making sure that it is possible for them to meet their financial obligations more easily.
Many experts see these new laws as unnecessary, because banks are already not allowed to automatically raise a customer’s credit limit. An Australian Banker’s Association executive said that most banks really have no motivation to offer credit to people who won’t be able to pay it off.
Still, banks are reacting because they have no idea what these reforms will mean to their businesses and their bottom lines, even though similar reforms have already been put into place in England and the United States that haven’t negatively affected profits. Some banks are offering credit increases of almost 80%, using language in their solicitations that makes a customer feel honou