Consumer Credit Reform and Behavioural Economics: Regulating Australia's Credit Card Industry

Australian Business Law Review, Vol. 40, No. 2, pp. 126-133, 2012

U of Melbourne Legal Studies Research Paper No. 597

16 Pages Posted: 7 May 2012 Last revised: 25 Jul 2012

See all articles by Paul Ali

Paul Ali

University of Melbourne - Law School

Cosima Hay McRae

University of Melbourne - Law School

Ian Ramsay

Melbourne Law School - University of Melbourne

Date Written: May 6, 2012

Abstract

Australian credit card debt has grown rapidly over the last two decades and there were, as at September 2011, 14.9 million credit card accounts in Australia with outstanding balances of $49.2 billion, representing an ownership rate of 87% of the adult population. Credit cards are the second largest type of household credit product provided by Australian banks, after household mortgages.

This research note examines the recent reforms enacted under the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Act 2011. The reforms include (1) a requirement for key fact sheets (containing information about costs, fees and repayments) for all new credit card contracts; (2) a requirement for credit card providers to “make reasonable inquiries about the maximum credit limit that a consumer requires”, to notify consumers when they have exceeded their credit limit, and to provide warnings about the consequences of minimum repayments; and (3) a ban on credit card providers issuing written credit limit increase invitations except where a consumer has consented. The research note links the reforms to behavioural economics by identifying how the reforms address two key consumer biases – optimism and imperfect self-control, and examines how the reforms seek to alter the behaviour of consumers vulnerable to financial hardship.

Keywords: credit cards, consumer credit, behavoural economics

Suggested Citation

Ali, Paul and McRae, Cosima Hay and Ramsay, Ian, Consumer Credit Reform and Behavioural Economics: Regulating Australia's Credit Card Industry (May 6, 2012). Australian Business Law Review, Vol. 40, No. 2, pp. 126-133, 2012; U of Melbourne Legal Studies Research Paper No. 597. Available at SSRN: https://ssrn.com/abstract=2052615

Paul Ali

University of Melbourne - Law School ( email )

University Square
185 Pelham Street, Carlton
Victoria, Victoria 3010
Australia
+61 3 8344 1088 (Phone)
+61 3 8344 5285 (Fax)

HOME PAGE: http://www.law.unimelb.edu.au

Cosima Hay McRae

University of Melbourne - Law School ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

HOME PAGE: http://www.unimelb.edu.au

Ian Ramsay (Contact Author)

Melbourne Law School - University of Melbourne ( email )

University Square
185 Pelham Street, Carlton
Victoria, Victoria 3010
Australia
+61 3 8344 5332 (Phone)

HOME PAGE: http://law.unimelb.edu.au/about/staff/ian-ramsay

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