The Federal Government is allowing a few days of industry consultation for credit card and home loan reforms that will have a profound effect on the operations and discretionary powers of consumer credit providers.

On Friday, Treasury released an exposure draft of the National Consumer Credit Protection (Credit Cards and Home Loans) Bill 2011 that formalises key credit card and home loan reforms announced last December.

Yet the time allowed for industry consultation fails to take into account the enormous impact of the proposed reforms.

“It will take away much of the discretion credit providers now have to momentarily cover a trusted customer’s bills payments when a credit limit would be exceeded,” Corrs Chambers Westgarth Partner, Andrew Galvin, says.

“The reforms will mean some customers will default on their bill payments when their bank or other credit provider could otherwise have avoided that situation.”

“Prohibiting customer credit limits being exceeded will also put enormous strains on the core systems and processes of banks and other credit providers,” Mr Galvin says.

Under the reforms, credit card issuers must apply customer payments to amounts subject to the highest interest rates before interest-free or low interest amounts are repaid.

“That may sound attractive to consumers but it is likely to result in card issuers choosing not to offer popular product features, like balance transfer promotions and introductory interest promotions, which they now use to win customers from competitors,” Mr Galvin says.

“With home loans, providers will also be expected to release standardised fact sheets to compare financial information, yet many products will simply not slot into in a one-size-fits-all format.”

“While it may sound like a good idea, the standardised documentation will be unworkable -- as was the case with mandatory comparison rate schedules which the government removed from the consumer credit laws over a year ago,” Mr Galvin said.

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