Credit card limits are on the way down
Now, a year after laws were introduced to make it harder for banks to make unsolicited offers to raise customers' credit limits, the trend has reversed.
As part of its banking reforms floated in 2010, the federal government banned banks last year from sending out offers to increase credit limits unless customers had given prior consent, and made it tougher for banks to approve increases. Reserve Bank figures show the average credit limit has fallen by $90 in the past year to $9091, bucking a decade-long rising trend.
Mike Ebstein of MWE Consulting said the change suggested the reforms were stopping people from raising their credit limits, which had a knock-on effect of further dampening card spending.
"Credit limits have increased basically year-on-year since the year dot," said Mr Ebstein, previously a general manager in ANZ's card division.
"The only explanation I can think of is that it's the legislation, which is what the industry predicted - that it would become so difficult to comply with the new guidelines that the momentum behind credit limits would dissipate."
But Australian Bankers Association chief executive Steven Munchenberg said it was not clear if the trend was completely the result of the new rules, as growth in credit limits started slowing in 2010.
"The legislative move may have had an effect but I think there's also probably an underlying trend, which is probably a reflection of ongoing consumer conservatism," he said.
Figures from the Reserve Bank show credit card limits have grown steadily since the beginning of last decade, from just over $4000 in 2000 to $9091 today.
The recent fall in limits has come as consumers take a much more cautious attitude to credit card use. The average balance fell by 1.6 per cent in the past year, and interest-accruing balances are falling more quickly.
Previously, banks came under fire for liberally offering credit limit increases, with critics claiming many of these increases were aimed at people with low incomes. Now, banks can only send these offers to customers who have asked to receive them.
Frequently Asked Questions about this Article…
Reserve Bank figures show the average credit card limit in Australia fell by $90 over the past year to $9,091, reversing a decade-long rising trend in credit card limits.
The fall in credit card limits followed federal banking reforms that banned unsolicited offers to raise credit limits unless customers gave prior consent and made it tougher for banks to approve increases; analysts such as Mike Ebstein say those rules have dampened the momentum behind higher limits, while the Australian Bankers Association notes consumer conservatism and slowing growth since 2010 may also be factors.
As part of reforms floated in 2010, the government banned banks from sending unsolicited credit limit increase offers unless customers had given prior consent and tightened the approval process for raising limits, meaning banks can only send offers to customers who have asked to receive them.
The article notes the reforms appear to have dampened card spending: the average credit card balance fell by 1.6% in the past year and interest‑accruing balances are falling even more quickly, suggesting lower limits can reduce both spending and revolving debt.
Yes—before the reforms banks were criticised for liberally offering credit limit increases, with critics saying many increases targeted people on low incomes; the new rules aim to prevent such unsolicited offers unless customers opt in.
Reserve Bank data show credit card limits rose steadily from just over $4,000 around 2000 to about $9,091 today, so the recent small fall marks a break from a long period of growth in limits.
Mike Ebstein of MWE Consulting and a former ANZ cards executive says the legislation likely caused the drop by removing momentum behind increases, while Australian Bankers Association CEO Steven Munchenberg cautions it may not be entirely due to the rules because growth in limits began slowing in 2010 and consumer conservatism is also a likely influence.
Everyday investors and cardholders should note that unsolicited limit increases are now restricted, average balances are falling, and consumers are acting more cautiously—if you need a higher limit you’ll generally have to request it, and monitoring card usage and interest‑accruing balances can help manage credit costs.
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