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Greedy banks gouge $1 billion a year from Australians with excessive credit card fees
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Jessica Irvine, National Economics Editor, News Corp Australia Network
August 30, 2014 10:00pm
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AUSSIES are being gouged by a billion dollars a year by credit card companies who have jacked up borrowing rates, despite the falling cost of funds.
More than a dozen lenders are charging punitive credit card rates in excess of 20 per cent, despite the cash rate falling to a record low of 2.5 per cent.
Card issuers have jacked up their average interest rate from 14.5 per cent to 17 per cent since the global financial crisis, new figures from Canstar reveal.
Consumer groups have branded the hikes an unjustified attack on hip-pockets.
“Yes, I think it’s gouging,” the director of campaigns at consumer group Choice, Matt Levey, told News Corp Australia.
“It does not support the view that there is effective competition in Australia’s retail banking sector.”
Aussie wallets are home to 15.5 million credit cards, on which $35 billion is accruing interest. The hike in average rates adds $2.4 million a day — or $870 million a year — to interest payments on that debt.
Cards branded as Platinum or offering rewards with airlines or retailers are the biggest interest rate offenders.
spokeswoman for comparison website Canstar, Justine Davies, said borrowers should be wary of these so called “rewards” programs.
“Consumers want bigger and better rewards — which comes at a premium on interest rate. It’s a shame because unless you pay your card off each month, you’re likely to be paying a premium for those ‘rewards’,” Ms Davies said.
Card surcharges costing Australians $1.6b
More than half of Australian households shoulder credit card debts. Only a third have mortgages.
Another tactic by credit card companies, according to Ms Davies, was to offer a very low upfront rate that converts to a high ongoing rate after a certain period.
“Consumers need to be wary — while a 0 per cent balance transfer could save them some money, the reversion rate can be as high as 23.5 per cent. And generally any purchases that they make on the card will be charged at this reversionary rate.”
GE Money is the worst offender, offering a low rate of 9.99 per cent on balance transfers for six months, reverting to the highest credit interest rate in Australia of 23.5 per cent.
“Aussies who don’t choose the right type of card for their spending risk being gouged,” Ms Davies warned. “The fact is that there are heaps of low-rate cards available — as well as heaps of high rate cards. If you’re on a high-rate card but not paying your credit card balance in full each month then prepare to pay through the nose.”
“You can’t rely on your bank — which, after all, has to make a profit for its shareholders — to tell you that you’re paying too much interest.”