Loans and credit cards
ASIC licenses and regulates banks, credit unions and brokers to ensure they do not give credit you cannot pay back. ASIC also takes action against financial service providers who mislead, are deceptive or demonstrate unconscionable conduct (conduct so harsh it goes against good conscience).
Here we explain the rules around consumer credit and how they affect you as a consumer.
- What to check before you borrow money or sign a contract
- When lenders can give you credit
- Credit cards
- Reverse mortgages
- Problems with your credit provider
All lenders, lessors and finance brokers must be licensed by ASIC or be a representative of someone who is licensed. Search ASIC Connect's Professional Registers to check your credit provider is licensed before you deal with them.
Some businesses that are exempt from licensing, such as retail stores and car yards. While the store may be exempt, the actual credit provider must be licensed. If you are unsure who the provider is, check your credit contract or rental agreement.
Read the credit guide
Any company engaging in credit activities must give you a credit guide and credit proposal disclosure document which will tell you:
- their Australian financial services licence number
- contact details
- fees and charges
- details of your right to complain or their external dispute resolution scheme.
They must also give you a quote for providing credit assistance unless:
- they have already entered into a written contract with you that sets out the maximum amount you will pay for their services; or
- they are providing services free of charge.
Credit providers must not enter into a contract with you that is unsuitable, such as a loan you can't repay without suffering hardship or a contract that doesn't meet your requirements and objectives.
By law the credit provider must also:
- make reasonable inquiries about your financial situation, requirements and objectives
- take reasonable steps to verify your financial situation.
Find out why you could be rejected for a loan and what you can do to improve your next loan application.
From 1 January 2019, when you apply for a credit card or a credit limit increase, lenders must assess your request based on your ability to repay the credit limit within three years.
Credit card providers are also not allowed to backdate interest on a balance that has had an interest-free period.
Credit card key facts sheet
When you apply for a credit card you should read the 'key facts sheet' that the lender must give you. This sets out the:
- minimum repayment (or how it will be calculated)
- interest rate that applies to purchases and cash advances
- interest rate that applies to balance transfers (and for how long)
- promotional interest rate (if any)
- length of the interest-free period (if any)
- annual and late payment fees (if any).
Minimum monthly repayments on credit cards
Your monthly credit card statement must tell you how long it would take to pay off your entire balance by making minimum monthly repayments. If you only make the minimum repayment each month, you will pay more interest and it will take you longer to pay off the balance. Use the credit card calculator on ASIC’s MoneySmart website to work out how to pay your card off faster.
Credit card limits
You can ask your credit card provider to increase your credit limit at any time, but they cannot contact you in any way to offer to increase your credit limit – even if you previously opted to receive these offers. This applies to both new and existing credit cards.
If you opened your credit card account on or after 1 July 2012, card issuers must not charge you a fee when your card goes above the credit limit, without first getting your agreement. You can withdraw your consent to this at any time.
If you opt out of these over-limit arrangements, the card issuer can still allow you to temporarily exceed your limit but must not charge you a fee for doing so.
If you get a credit card after 1 January 2019, your credit card provider must also give you the option to cancel your card or reduce your credit limit online.
All reverse mortgages providers must guarantee that at the end of the reverse mortgage you will not have to pay back more than the value of your home. This is called the ‘no negative equity guarantee’.
Read the reverse mortgage information statement
When a lender offers you a reverse mortgage they must give you a 'reverse mortgage information statement', which contains:
- details about how a reverse mortgage works
- information on how costs are calculated
- what to consider before taking out a reverse mortgage
- useful contacts for more information.
Reverse mortgage projections
Your credit provider or credit assistance provider must give you projections about any proposed reverse mortgage - in person - before you take out a reverse mortgage. These projections must be created using the reverse mortgage calculator on ASIC’s MoneySmart website.
These projections will show the effect a reverse mortgage may have on the equity in your home over time and show the potential impact of interest rates and house price movements. You must be given a printed copy of these projections.
See reverse mortgages for more details.
Loans of $2,000 or less
Lenders have been banned from offering loans of $2,000 or less that must be repaid in 15 days or less.
The fees charged on small amount loans of $2,000 or less that are to be repaid between 16 days and 1 year are capped. Credit providers can only charge you:
- a one-off establishment fee (of not more than 20% of the loan amount)
- a monthly account keeping fee (of not more than 4% of the loan amount)
- a government fee or charge
- default fees or charges (the credit provider cannot collect more than 200% of the amount loaned if you miss a payment or fail to pay back the loan)
- enforcement expenses (if you default, these are the costs incurred by the credit provider going to court to recover the money you owe under your credit contract).
This cap on fees and ban on short-term loans does not apply to loans offered by Authorised Deposit-taking Institutions (ADIs) such as banks, building societies and credit unions, or to continuing credit contracts such as credit cards.
Find out more about payday loans.
Loans of $2,001 to $5,000
For loans of $2,001 and $5,000 to be repaid between 16 days and 2 years you can only be charged:
- a one-off fee of $400
- a maximum annual interest rate of 48%, including all other fees and charges.
Loans of more than $5,000
The law does not allow the total amount of fees and charges on loans to exceed 48%. This rule applies to loans of more than $5,000, loans with terms of more than 2 years; and all continuing credit contracts (such as credit cards).
ADIs such as banks, building societies and credit unions are exempt from these fee caps.
If you are having problems dealing with your credit provider see how to complain for advice on what to do.
If your credit provider breaks any of the above rules you can report this to ASIC.