CONSUMERS will save thousands of dollars in credit card interest repayments and be able to cancel their plastic online after the nation's embattled banks privately agreed to dramatically overhaul how they charge card holders.
The rearguard action will help diffuse criticism of the eye-watering credit card interest paid on purchases and is among a suite of measures sent to the Australian Securities and Investments Commission for approval.
It means Australians will now only pay interest on what remains on their credit card from their purchase - not the full amount of purchase.
It is a trap many households fall into. They buy a product and if they pay just a portion of the price during the interest free period, they are still slugged interest on whole amount borrowed.
For example, if they bought a television for $5000 and paid off $1000 by the interest-free period, consumers will still pay interest on the $5000 when the interest-free period ends.
This will now change under the code, which could be ticked off within months by ASIC.
It has been a bug bear for consumer-groups and Australians for many years but banks have always defended the practice.
But a renewed and sustained blowtorch on the banks has sparked another round of reforms under a new enforceable code that will be fairer and save customers money.
Other plans include:
● No more unsolicited credit card limit increases offers, which will help customers not get into more debt,
● Allowing customers to cancel a credit card online,
● Making banks assess a customer's ability to repay entire purchase amounts within a certain time to understand their ability for certain amounts of credit,
● Giving customers a list of direct debits that come off cards and account to better inform them what is coming off their account or credit card.
And in another significant overhaul, guarantors will have to wait three days before proceeding as a guarantor on loans in a bid to stop financial abuse or undue pressure from family.
The code will be implemented within the next 12 months from sign-off from ASIC (likely in the next couple of months).
Australian Bankers' Association chief executive officer Anna Bligh said the code was developed after hundreds of hours and more than 50 meetings with banks and stakeholders over nine months.
"Banks are committed to change and the new code is stronger, broader and written in simple to understand language. It has been completely rewritten to better meet community expectations and service the needs of customers," Ms Bligh said.
"The industry has achieved the ambitious task of developing a new Code only nine months after receiving the final report from independent reviewer Mr Phil Khoury.
"The new code means we are making banking easier, by making changes to processes, providing customers with more information and introducing higher standards for how banks serve their customers.
"This new set of rules and behaviours will go a long way in addressing the expectations that Australians have of their banks. Banks most certainly do not underestimate the challenge ahead of them and will continue to make the necessary changes and improvements that their customers expect.
The Code is the first industry code to be sent to ASIC for approval and was part of major industry initiatives announced in April 2016 to raise banking standards.
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