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The crackdown on credit cards doesn't go far enough

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The federal government has sprung into action to tackle Australia's personal debt problem, with the latest data pinning the country's outstanding credit card bill at around $52 billion.

Following a senate inquiry, the treasurer, Scott Morrison, announced a four-pronged approach to crackdown on "unfair and predatory practices used by credit card providers". The first phase is expected to be in place by the end of the year.

First, the government wants a change in the way eligibility for a credit card is assessed.

Currently applicants need only demonstrate they're able to meet the minimum repayments, which Morrison suggests has left customers with debt they weren't prepared to pay down.

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The new system would see applicants assessed on their ability to "repay the credit limit within a reasonable period".

Unsolicited written offers of credit limit increases have been banned since 2011 but the door was left open for providers to approach customers with offers electronically or over the phone without penalty. The second reform will see the ban extended to these offers.

The third reform simplifies the way interest is calculated, so that interest can only be charged from the end of the statement period on the amount outstanding rather than the date of purchase.

Lastly, providers will be compelled to offer customers online options to either cancel credit cards or reduce limits.

While the reform is beneficial to cardholders, it doesn't push hard enough. Another more effective option the government should consider if it is serious about addressing spiralling debt is compelling card issuers to lift minimum repayments.

In fact, Mozo calculations show that increasing the minimum repayment from 2% (or $10) to 10% (or $100) on the average credit card debt would save cardholders around $6.4 million in interest charges.

The debt would also be paid down in just over two years, rather than 35-plus years.

With an average debt per cardholder of around $4300, the reality is that keeping the minimum monthly repayment of 2% will see plenty of cardholders saddled with decades of debt.

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