Australia’s big retail banks are sabotaging the Reserve Bank’s move to boost consumer spending through its recent official interest rate cut.
According to the country’s leading financial products research houses – Canstar and Mozo – no bank has repriced rates on credit cards in line with the RBA’s 0.25 per cent reduction.
While both research houses have adjusted rates on hundreds of mortgage products and deposit accounts in the past week, their rate tables for credit cards have not had to be updated.
“We haven’t received any advice from lenders about cuts to credit cards or personal loans,” said Canstar spokesperson Justine Davies.
Mozo director Kirsty Lamont said the banks had a track record of using credit cards and personal loans to boost profit margins.
“I wasn’t expecting many lenders to pass on the official cut to credit card holders because they never do,” she said.
“The banks collect millions of dollars each month by refusing to pass on official rate reductions to credit card holders.”
Banks ignore Joe Hockey
The banks have snubbed federal treasurer Joe Hockey’s call to pass on the rate decrease to credit card holders.
Soon after the RBA cut was announced on February 3, Mr Hockey said he expected rates on all credit products to fall immediately.
“I expect the banks to pass these cuts on immediately … I also expect this to be passed through, particularly for small business owners and to be passed through for everyone that has a credit card. We expect this to cut through right across the spectrum of credit.”
Mr Hockey’s attempt at jawboning the banks into doing the right thing was nowhere near as effective as he had hoped.
Consumer advocacy group CHOICE has called on the major banks to end exploitation of credit card users.
“The big four banks should pass on the latest interest rate cut to their credit card customers and end a sustained period of price gouging,” said CHOICE spokesman Tom Godfrey.
“Despite the official cash rate falling 25 basis points to 2.25 per cent last week, ANZ, CBA, NAB and Westpac still charge around 20 per cent per annum on credit cards they offer.”
Credit cards are getting more expensive
Published research by Mozo shows that the average rates on credit cards have actually risen since the Reserve Bank began easing monetary policy four years ago.
Official interest rates have been cut by 2.5 per cent since November 2011, but the average rates on all credit cards since then has gone up.
“There is a consistent trend of credit card rates going up,” said Ms Lamont.
“There seems to be no relationship in the pricing of credit cards and movements in the cash rate.”
Ms Lamont observed that banks typically fattened profit margins on credit cards and personal loans to help fund more competitive pricing in other areas like home lending.
“The average credit card purchase rate is now 17.56 per cent – nearly eight times higher than the official cash rate,” she said.
“Credit card rates have actually risen over the last two years from 17.14 per cent in February 2013.”
Ms Lamont also observed that only two lenders – ANZ and Suncorp – had repriced personal loan products such as car loans since the RBA cut was announced.
Banks messing with consumer sentiment
One of the main drivers of the RBA’s decision to cut rates last week was to stoke flagging consumer demand.
However, the commercial banks are limiting the benefits to the Australian economy by only passing on rate reductions to home borrowers.
In this sense, the pricing strategies of the banks are distorting the impact of monetary policy on the economy and, potentially helping to create a housing bubble.