There is plenty of competition in the credit card market, though it would be easy to assume otherwise – most people simply do not shop around for the best card.

Many do not know the interest rate they are paying, even though cards are one of the most expensive forms of credit available, with an average interest rate of 17 per cent.

About 75 per cent of cardholders pay off their balance before they incur interest, but card debt often becomes a long-term burden for the remainder, who pay for three-quarters of cardholders to enjoy free credit.

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A senate inquiry into credit cards will this month report on whether card issuers should be forced to raise the minimum monthly repayment, set tighter credit limits and whether zero interest rate transfers should be banned.

The inquiry has heard that consumers can be left with “debt sentences” of thousands of dollars years after having their card cancelled, usually at an interest rate of more than 20 per cent.

‘No real competition’

Many Aussies have no idea of their card’s interest rate. Photo: Getty

There are more than 50 credit card brands and 171 different products available and Reserve Bank assistant governor Malcolm Edey told the inquiry that consumers should shop around.

But the chief executive of consumer group CHOICE, Alan Kirkland, describes the competition as a “façade”.

It is too hard to switch or cancel cards and people should be able to do it online, he said.

Card products are difficult to compare, it can be hard for consumers to choose the right one for their circumstances and people who have automatic payments attached to their card find switching too troublesome.

Bankers warn that desperate consumers could go to payday lenders if they cannot use a credit card.

“A credit card is an important product that offers customers flexibility, efficiency and convenience and an ability to do safe online transactions – which now constitute about 40 per cent of ANZ’s transactions, and obviously a protection against fraud, where the bank wears the risk,” ANZ head of customer management and strategy Marco Kohne told the inquiry.

Rates simply won’t budge

Are you getting fleeced? Ignorance is definitely not bliss. Photo: Shutterstock

There is slow growth and strong competition in the card market, with the 80 per cent share held by the major banks under attack from newer entrants such as supermarket operator Coles.

About one million people change credit card providers every year, according to National Australia Bank (NAB) group executive product and markets, Antony Cahill.

He said it is easy to switch cards and the number of low-rate and low-fee cards is increasing.

The Reserve Bank says card rates have remained “sticky” when interest rates have fallen over recent years but Mr Cahill said other costs have risen and NAB’s cost of funds is only 22 per cent of the cost of the card program.

Financial Counselling Australia wants the minimum monthly payment raised above 2 per cent so borrowers have to pay off more of their debt.

Chief executive Fiona Guthrie called for tighter responsible lending obligations for assessing credit limits.

“A consumer should be able to repay the maximum limit within three years,” she said.

‘Zero’ rates deceptive

Advocates are pushing to make credit cards less of a burden. Photo: Getty

Consumer advocates want an end to zero interest rate balance transfers, designed to attract new customers by offering a no-interest period if they transfer their card debt.

Ms Guthrie said these offers are aimed at people struggling with debt.

“After the zero balance period ends, the rate charged to that customer should be lower than the bank charged on the previous card, it should not leave them worse off,” she said.

The Commonwealth Bank does not offer zero interest transfers and has asked the senate committee to consider banning the product.

Group executive of retail banking services Matthew Comyn said experience here and internationally is that customers increase their debt and and many do not pay it off before the end of the offer period.

Financial counsellors question whether most people do regularly pay off their card debt.

They see clients with persistently high credit card debt who pay off a substantial amount each month but then withdraw again.

Cardholders who pay interest account for nearly two-thirds of outstanding card debt, a total of $51.5 billion at June 30, but borrowing by card is in long-term decline.

Card usage has fallen to slightly under 3 per cent of all household debt, down from 4.5 per cent in 2001, probably due to people switching to debit cards or borrowing from a much cheaper mortgage redraw facility.