Australia’s banks have been criticised for ‘stealing’ billions of dollars from the pockets of credit card customers by failing to pass on interest rate cuts.
Consumer group Choice claims the banks’ resistance to matching the Reserve Bank on rate cuts over the past decade has cost customers $6.3 billion, based on analysis by comparison website Mozo.
Choice CEO Alan Kirkland said the decision to keep rates “stubbornly high” on a suite of high-interest products has forced customers into devastating “debt spirals” and years of financial turmoil.
“By failing to pass rate cuts on for credit cards, banks have effectively stolen $6.3 billion from the pockets of Australians,” Mr Kirkland said in a note.
“While the [official] cash rate has dropped from 4.75 per cent from 0.25 per cent since 2011 … some banks – including ANZ, Bendigo and St George – have even increased rates.
“This is disappointing behaviour from an industry looking to restore trust after the scandals of the Banking Royal Commission.”
However, a spokesman for the Australian Banking Association (ABA) rubbished Choice’s attack and said the consumer group selectively chose a group of premium products.
Products at the upper end of the market usually include added benefits such as travel insurance, frequent flyer rewards and other points programs, the spokesman said.
“A quick search on Mozo and Choice’s very own websites shows that Australian banks are fiercely competitive when it comes to credit cards, offering a wide range of products – with some having interest rates as low as 10 per cent and no annual fee,” he told The New Daily.
The banks have also aided credit card customers struggling to meet their repayments as a result of the coronavirus.
More than 760,000 customers have been granted deferrals on loan repayments under the banks’ hardship measures announced in March – including 69,000 credit card and personal loan clients.
At least a dozen premium products cut against the grain
Choice’s latest criticism is part of its ongoing ‘Make Banking Fair’ drive, which is pressuring the major banks to cap credit card interest rates at 10 per cent and waive long-term credit card debt.
Although the consumer group lashed the banking sector at large for keeping rates above the Reserve Bank’s official cash rate, it singled out a dozen products whose interest rates have increased since April 2016.
That’s in stark contrast to the RBA’s steps over the following four years to slash rates by 1.75 percentage points to 0.25 per cent.
The Coles branded Coles Low Rate Mastercard topped the list with an increase of 3 percentage points.
However, a Coles spokesperson disputed Choice’s claim, alleging the analysis focussed on a promotional offer provided to new credit card customers that ran for a period in 2016.
“The interest rate both before and after this period was 12.99%, which is where it remains today, and we believe it is competitive when compared to similar cards available in the market,” he told The New Daily.
ANZ’s trio of rewards cards (including its standard Rewards, Rewards Black and Rewards Platinum cards) and other banks including ME, Bendigo Bank and Bank of Melbourne all boosted rates on some products by at least 0.75 percentage points.
A Bendigo Bank spokesperson also told The New Daily the 2016 figure represents a VISA card product that is no longer available on the market.
Mr Kirkland said dissatisfied customers should vote with their feet if they feel unhappy with their bank’s rates.
“Cancel your current credit card and switch to a bank with a lower-rate card – this will send the loudest message to the banks that they need to treat their customers fairly,” Mr Kirkland said.
Currently, Commonwealth Bank and Westpac are the only major lenders to offer one credit card product with interest rates below 10 per cent.
‘High-risk’ credit cards mean higher interest rates
Last month, University of Technology Sydney finance professor Harry Scheule told The New Daily that banks should continue working to limit the exposure of vulnerable customers to high-risk products.
Although banks argue that credit cards carry higher interest rates because they are a form of unsecured lending, Professor Scheule said previous calls from Choice to limit credit card interest rates to 10 per cent were reasonable.
RBA data shows the average credit card debt (total balance accruing interest) held across more than 13 million active accounts sits at $1978.