Banks accused of $3.5 billion credit card rip-off
AUSTRALIANS are being ripped off billions of dollars because of greedy banks’ refusal to pass on interest rate cuts, consumer group Choice says.
As the big four banks front up at today’s Parliamentary Inquiry hearings — and homeowners await this afternoon’s Reserve Bank rates announcement — there is one frustrating rate that never seems to budge.
Credit card interest rates have barely changed in six years, even though the RBA cash rate has dropped by 3.25 per cent since mid-2011.
Choice’s analysis, based on date from comparison site Mozo, has found that this failure to pass on rate cuts has cost Australians with credit cards a whopping $3.49 billion — an average $220 each in extra interest payments.
“Instead of falling in line with the cash rate, the average credit card interest rate has dropped only slightly since mid-2011 from 17.41 per cent to 17.35 per cent,” says Choice’s head of campaigns Erin Turner.
“With consumers needlessly paying billions of dollars to the banks in the form of excessive interest, we welcome the opportunity the Parliamentary Inquiry provides to grill the banks on their poor practices.”
The banks have long argued there is little link between RBA movements and card rates, claiming that reward programs added to their cost — despite the fact that low-interest cards, which do not have points scheme attached, have barely budged.
Under increasing public pressure, ANZ last month cut the interest charged on two of its “low rate” credit cards, while Westpac’s announced plans to introduce a “basic credit card” with an interest rate of less than 10 per cent.
But Ms Turner said the fact remained that “the vast majority” of credit card customers who carried a balance forward were being charged “rip-off” rates of between 14 and 19 per cent.
“They may have a ‘lower’ rate card, but they’re still gouging consumers every other credit card product.”
Ms Turner said if the banks would not lower rates in the current, historically low interest rate environment, it did not bode well for what could be “a more inflationary part of the interest rate cycle” ahead.
The average Australian has a $1933 outstanding balance on their credit card. Those who pay their balance in full each month can avoid paying interest altogether, but consumers with a balance that is carried forward are encouraged to shop around for a better rate.