Broker value with credit changes

by Rebecca Pike17 Nov 2018

Credit card changes coming into place at the start of next year will give brokers more opportunity to add value to their customers.

As of January, banks will need to make sure a borrower applying for a credit card is able to pay off the limit within three years.

The Australian Securities and Investments Commission (ASIC) announced the changes in September off the back of concern around Australia’s growing credit card debt.

As at June 2017 the credit card market had $45 billion in outstanding balances and 1.9 million consumers were struggling with debt.

In ASIC’s report, in the 12 months to June 2018 $621 million could have been saved by consumers if they had switched to a lower rate card.

According to one fintech lender, borrowers were too easily applying and reapplying for new cards with a particular reliance on transferring credit between cards, which ASIC referred to as ‘revolving credit’.

Stuart Stoyan, founder and CEO of MoneyPlace, said the new changes may mean borrowers will have reduced serviceability when it comes to applying for home loans.

Lenders may need to see a lowering of credit limits or closing the credit card altogether before a loan is approved.

Stoyan said this is what will provide brokers with the opportunity to offer solutions to their clients.

Explaining the reasons behind the changes, he said, “What we have seen in the market is in the aggressive use of balance transfers as a way to be able to entice people to take out new credit cards. We have also seen use of frequent flyer points to entice people to take out credit cards as well.

“We have observed there are people who take but then continue to spend of their old credit card. Net effect of this is to double their debt.

“These changes are a way of putting a constraint on credit. What this means for borrowers, they’ll need to adjust their behaviour.

“When the music stops a bunch of people are going to be caught holding a balance transfer. While you have previously been able to move to a new balance transfer pretty easily, now you might get stuck on a higher rate card.”

Stoyan said brokers at MoneyPlace have already begun having conversations with their clients about the changes and what it means for them.

He said, “The broker will need to consider how much credit limit the borrower has across their credit cards.

“Some of the brokers working with MoneyPlace are using this as an opportunity to have a conversation around debt consolidation and personal loans.

“What the broker will potentially be able to do is get the customer out of the credit card debt with a personal loan. What that will do is put the customer in a fixed repayment plan and will most likely be at a lower interest rate.

“That's the exciting conversation brokers are having. Not only saying you could save money, but also you could get out of your debt.

“What it does it creates an opportunity to work with their clients to be able to say let’s look at your credit card portfolio, let’s consolidate your debt. You’re going to need to do that anyway because of your credit card exposure, but also if you want a mortgage you’re going to have to reduce that anyway.”