Letting Consumers Set Their Credit Limits

Labor is set to put a stop to the automatic increasing of credit limits by banks and credit providers and compelling every company to disclose all vital information on the application forms as well as the statements.The consumer will now have the power to set the credit limit instead of the bank according to Prime Minister Julia Gillard. The banks are also barred from giving upper limit in every application. The sad reality is that many Australians are in heavy credit card debt since each extension is readily accepted.

To stress the point, Ms. Gillard disclosed that there are one hundred and fifty thousand Australians each month who are approved to have a credit card. This staggering amount only proves that application is not stringent and approval is easy. Nowadays, anybody can get a credit card, which only shows how much we rely on plastics to maintain our standard of living.

With this new policy of the government, the Labor Party made sure that banks will be penalized if they offer credit limit increases as they have regularly done so in the past. The only way to make this practice legal is when the consumer decides to accept the service.

Moreover, credit card statements will drastically change with some important disclosures. This will include a section on the length of time needed to fully pay the credit due especially when the card holder only pays the minimum fee. The interest to be paid should also be computed, showing the charges during the entire duration until the balance is fully paid.

This is pure transparency without any hidden agenda that banks and credit providers can potentially earn huge sums from the interests on installment payments. Moreover, the practice of getting a high credit limit somehow perpetuates the culture of overspending more than what is earned or needed. By clearly showing how credit card charges you over the years, it is hoped that people will step back and re-think how they spend. Actually, many people feel burdened by their credit card bills because they do not get any help from the providers on using their card responsibly.

When the global financial crisis hit in 2008, credit card balances have dropped. This may be because people strongly felt the urge to be more mindful of their spending and reducing their debt so as to decrease the interest they pay. However, at the opening of this year, the balances have picked up and even set a record high of an estimated $44 billion according to the information supplied by the Reserve Bank of Australia. Only this June, Australians owned 13 million and more credit cards at a combined credit limit of approximately $122 billion.

Ms. Gillard, if elected, hoped to go in dialogue with major financial institutions as well as consumer groups on possible reforms to the present credit card practice. She believes that by providing the whole picture of the credit card set up through complete information, people will be guided. They will also be able to put up their own measures on limiting their credit card use by not accepting higher credit limits.

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