I have spoken about NCCP many times before in the context of housing and motor vehicle finance. In terms of housing it seems to have had quite a measurable market affect, in terms of vehicle finance it just seems to have simply annoyed the people who have to fill in the extra paperwork. This outcome is obvious because motor vehicle lenders were rarely lending on the premise that the underlying asset would rise in value over the life of the loan, while housing lenders were … well you know.
It has taken some time, but according to Banking Day, the NCCP is finally starting to bite into the credit card market as well.
The flow of applications for credit cards is beginning to slow, in part due to revised lending practices by banks as they conform to new regulations on the lender’s approach to this style of lending.
A news feature in the Australian Financial Review today, on the impact of new federal laws on consumer credit, quotes Michael Cant, executive general manager for retail products at Commonwealth Bank, saying, “We are already seeing quite a drop with new credit card applications.
“Quite a lot of people are saying, ‘this is too difficult’ and dropping out half way.”
In March, the Treasurer released an exposure draft of the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011, which introduces a requirement for lenders to provide a key facts sheet with home loan and credit card contracts.
The bill, which reflects Labor policy announced before the 2010 election, is still under examination by the House of Representatives but is expected to be passed by Parliament.
The bill also contains provisions that regulate the approval of spending on credit cards above the credit limit; restricts issuers from making unsolicited invitations to increase credit limits, and specifies an allocation hierarchy for payments, so that credit advanced on higher rates is repaid first.
The most controversial aspect of the bill relates to use of cards above the credit limit. A credit provider will be allowed to approve purchases that would result in the credit limit being exceeded, but this buffer will be limited to a 10 per cent default.
The AFR quoted Phil Chronican, chief executive of ANZ in Australia, saying the reform was likely to cost the industry several hundred million dollars a year in revenue.
I can’t be too sure how much NCCP can be blamed for the slowing of credit cards. Lending growth is slowing across many other areas and this maybe just another example of the “quiet consumer” that RBA has massaged into existence. But given that Australia’s private sector debt is already astronomically high I am in full support of any policy that adds additional prudence to any lending market.