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Credit card limits are on the way down

For years, even at the height of the global financial crisis, Australians increased their credit card limits.

For years, even at the height of the global financial crisis, Australians increased their credit card limits.

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.

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