Consumer credit bill will hurt lenders

Leading credit card issuers have criticised the responsible lending provisions of the proposed national consumer credit law, saying they will damage their businesses.

Speaking at yesterday's International Consumer Credit Card Summit in Sydney, Commonwealth Bank executive general manager of credit cards, Stephen Karpin, said the new law "will hurt us"

In April the Australian government released a draft of the National Consumer Credit Protection Bill, which replaces state consumer credit law. The plan is for the new law to take effect from the start of next year.

Lenders and intermediaries will have to hold an Australian Credit Licence. The Australian Securities and Investments Commission will apply entry standards for licensing and will have the authority to refuse applications.

The main obligation for licensees will be to ensure they do not provide or suggest a credit contract is unsuitable to the consumer The lender must assess that the credit contract will meet the consumer's requirements and that the consumer has capacity to repay the contract.

The rules cover new loans, refinancing, increases in credit limits and also when a licensee recommends that a consumer remain in an existing credit contract.

One provision says: "A credit contract is unsuitable for a consumer if… it is likely that the consumer could only comply with the financial obligations under the contract with substantial hardship."

Breaches of the responsible lending rules will be subject to criminal and civil penalties.

Karpin said: "The card business model is about getting people in on low credit limits and then moving them up as they can afford it.

"The consumer credit legislation turns that on its head. We think it will hurt us."

GE Money's Skander Malcolm said the legislation was "disproportionate".

"It is aimed at fringe lenders. It will be difficult for retailers," he said.