The Australian Securities and Investments Commission has made the first use of its power, under the National Credit Code, to limit the level of increased charges that can be imposed on a borrower in default.
As a result of concerns raised by ASIC, American Express has agreed to change its approach to the charging of a higher default rate to customers who have defaulted on their payment obligations.
Amex was adding six percentage points to affected customers’ credit card rates for 12 months. The higher rate was applied to the total balance, not just the overdue amount.
This practice applied to holders of credit cards issued directly by Amex, not the customers of its partners, such as David Jones or the big banks.
As a result of ASIC’s intervention, Amex will reduce rates on eight per cent of credit card accounts.
ASIC will only allow a penalty rate of interest to apply to the money overdue and only for the period it was overdue.