Credit card holders gouged more than $2 billion since 2011, research shows 

Date
    August 4, 2015
    Sydney Morning Herald

The major banks are being accused of gouging customers with startling high interest rates.

Credit card holders have been ripped off more than $2 billion dollars in nearly half a decade because of the banks' failure to pass on official interest rate cuts, research shows.   

Since November 2011, when credit card providers stopped moving interest rates in line with the official cash rate, Australians have been gouged $2.07 billion, say consumer group Choice and comparison website Mozo.

"The fact is an average credit card holder has paid an extra $281 because of unnecessarily high interest rates. Worryingly, this comes at a time when one-in-five Australians are living off their credit card to get through to payday," said Choice's campaigns manager Erin Turner.   

"The findings point to a systemic issue with Australia's banking system. Because the big banks control over 80 per cent of the credit card market, they aren't competing on price and are keeping consumer costs high even though their costs for providing credit have dropped," she said ahead of the Reserve Bank's meeting on Tuesday.


The research found fewer than one-fifth of the 55 major credit card providers between November 2011 and May 2015 adjusted their interest rates following an official interest rate cut.

The official cash rate is at a record-low of 2 per cent. The gap between the Reserve Bank's rate and credit card interest rates is at its widest since records began in 1990.



But in the past few years, interest rates for just about every other type of debt have plunged, baffling economists and consumers.

The top brass of Treasury and the Reserve Bank were interrogated about the record gap by Labor senator Sam Dastyari in June. They conceded it was a "good question" and they would take a closer look.

The Treasury has essentially advised Treasurer Joe Hockey there is no systemic problem in this part of the banking market. It also does not think the issue is a symptom of a lack of competition.

A Senate committee will soon begin investigating into why Australia's big four branks are charging such high rates without clear reason. Choice will present more detailed findings of its analysis.



"We know the average credit card interest rate in June 2011 was 17.41 per cent but instead of falling in-line with the cash rate it rose by 0.2 per cent over the last four years to 17.61 per cent by the 31st of May this year," said Mozo's Kirsty Lamont.

"We have also seen the average credit card annual fee rise from $94 in late 2011 to $115 in May 2015. Clearly consumers are getting a raw deal."   

Steven Münchenberg, chief executive of the Australian Bankers' Association, insisted the banking industry was competitive, pointing to the vast array of credit card products on offer by at least 67 financial institutions.

"The interest rate on bank credit card products covers a broad range - from a low of 5.30 per cent to a high of 20.99 per cent. Each credit card product offers a range of benefits - from no frills to premium options," he said.

"Interest on credit cards is higher than it is for mortgages and some personal loans. This is because credit card lending is unsecured and therefore riskier. Banks need to factor in the risk that the person holding the credit card may default," he said.

"The interest rate will also reflect the various features of the credit card. It is these considerations that drive credit card interest rates, not the Reserve Bank's cash rate."

Lisa Jones wrote on Aug 4^th, 2015 at 11:11am:


Does that mean you should save up first before you buy a house ?

bogarde73 wrote on Aug 4^th, 2015 at 11:22am:


A mortgage is a day to day expense or month to month expense and the banks profit out of both mortgages and credit cards. I see no difference between the two except that it is acceptable to buy a house on credit.

Sir lastnail wrote on Aug 4^th, 2015 at 11:18am:


Oh duh!

I worked for the Commonwealth Bank back in the 1970s when credit cards first came to Australia. Yes I got one back then and I just became credit card free last week. For 40 years that little card was my constant companion, can't say I paid a hell of a lot in interest but am glad to see it gone.
Our banks have a lot to answer for, particularly on the issue of offering increased limits without a full financial check-up.
I know someone who is struggling to keep abreast of a $6000 limit, and yes, perhaps it is her fault she got herself into that situation in the first place, but she should never have been given a $6000 limit by the Westpac Bank.

bogarde73 wrote on Aug 4^th, 2015 at 11:33am:


So we shouldn't borrow to buy a car  because it's not a long term investment ?

Lisa Jones wrote on Aug 4^th, 2015 at 11:34am:


According to Andrei's signature quote Lisa has no imagination.

"Anyone who lives within their means suffers from a lack of imagination - Oscar Wilde"

Unforgiven wrote on Aug 4^th, 2015 at 11:58am:


I don't care what Oscar Wilde thought.

I care about what works well for my family today....what puts them in front.