'You will pay off your balance in 146 years'
IF COMMBANK had its way, Assam would be paying off his credit card for the next century and a half.
The 58-year-old disability support pensioner, who has been unable to work since 2003 due to ill health, can barely make ends meet.
And yet the banks happily loaded him up with no fewer than five credit cards and an overdraft with a total limit of $61,500, which he nearly maxed out.
Assam's main debt of $44,000 was on his CommBank Mastercard, accumulated after the bank jacked up his limit from $2000 to $44,600 in 2015 - the same year he moved in with his brother, unable to afford the rent for his apartment.
"If you make only the minimum repayment each month, you will pay off the closing balance shown on this statement in about 146 years, five months," his credit card statement from January 2018 reads. "And you will end up paying estimated total interest charges of $340,604.78."
That means Assam would have been paying off his credit card bill until the year 2164 - assuming he lived to the ripe old age of 204.
"People who are in persistent credit card debt are actually very profitable to the banks," said Consumer Action Law Centre senior policy officer Katherine Temple.
"People who are struggling to make ends meet tend to be the ones that pay the most in interest and fees, so trapping people in a cycle of credit card debt is often in the banks' interests."
Assam's case, which was resolved on "favourable terms" with CommBank after the Consumer Action Law Centre lodged a complaint with the Financial Ombudsman Service on his behalf, highlights the Faustian nature of $50 billion credit card industry in Australia.
A recent report by the Australian Securities and Investments Commission found 1.9 million Australians were struggling with credit card debt, and it remained the number one issue facing callers to the National Debt Helpline.
Under changes to legislation passed in February this year, ASIC was tasked with setting a cap on credit card limits, based on an amount that can be "affordably repaid" within a set period - likely to be three years.
In a joint submission to ASIC's credit card responsible lending consultation paper, the Consumer Action Law Centre, Choice, Financial Counselling Australia and the Financial Rights Legal Centre have called for that to be limited to two years.
"A two-year assessment period would ensure that Australians are not trapped in long term, expensive credit card debt," the submission said. "We consider that this proposal would significantly reduce the consumer harm being caused by inappropriate credit card product design and lending practices."
Another case study contained in the submission tells the story of Mary, a 79-year-old age pensioner who has been struggling to pay off a $1500 credit card debt for 15 years. She has been paying what she can but has struggled to pay down the interest, let alone the principal.
When she went to the bank, she was told there was nothing they could do.
Similarly, disability support pensioner Jill has been paying off the same credit card debt for 21 years. She used the $1500 to buy Christmas presents in the mid-1990s, missed a few payments and the card was cancelled. In 1997, she made a repayment arrangement with the bank to pay $30 per month.
Fast-forward to 2018, her debt was still just over $1000. Despite making every agreed payment, she had been incurring interest and in some months late fees of $45, meaning she was effectively going backwards.
Over more than two decades, she paid in excess of $7000 towards her $1500 debt.
"Banks have designed and marketed credit cards in a way they are setting many people up to fail," Ms Temple said. "What we see is people often don't get to the point of default, they are constantly just making the minimum repayments but not really getting ahead in terms of the principal amount owed.
"In the industry they call them 'revolvers' and 'transactors'. The intention is to keep people revolving, always having a balance that's accruing, rather than transacting where you pay the balance off every month."
While credit cards have always been subject to responsible lending obligations, those assessments were based on people's ability to repay the minimum amount plus a small buffer, meaning many people could be left paying off the same debt for decades.
ASIC's crackdown, which will apply to all new cards issued after January 1, 2019, has been welcomed as a much needed reform to products the consumer groups argue have "been designed to trap many people in long-term, expensive debt".
Ms Temple said it was "just another example of the banks designing their products in the way that makes them the most money rather than in a way that helps people's financial wellbeing".
"If they were serious about doing the right thing they would be promoting savings more and selling us products that suit our needs, rather than trying to trap us in decades of debt," she said.
In March, the Banking Royal Commission heard how CommBank fed problem gambler David Harris' addiction with repeated increases to his credit card limits, despite him trying to "tell them I had a problem".
It comes after new analysis by financial comparison website Mozo showed credit card rewards programs are now virtually worthless following the Reserve Bank's interchange fee regulation, meaning many consumers were paying higher interest rates for nothing.