The head of the consumer watchdog says Australians deserve an explanation about why banks are charging exorbitant credit card interest rates.
There’s growing concern consumers are being gouged by credit card rates in excess of 20 per cent, despite record low lending costs.
ACCC chair Rod Sims told The New Daily consumers deserve to know why those rates are so high, despite the RBA’s interest rate sitting at 0.1 per cent.
“It’s certainly an issue where you’ve got interest rates being charged at about 20 per cent and of course the cash rate is much closer to 1 per cent,” Mr Sims said.
“There’s a very large gap, which the Australian people do need to have explained to them.”
‘Embarrassing’: Banker cops a grilling on credit cards
Banks are facing mounting scrutiny over credit card rates ahead of new ASIC rules coming into force and calls from advocates for an ACCC probe.
On Friday, ANZ CEO Shayne Elliott defended an aggressive marketing campaign for a 20.24 per cent interest rate card in an appearance before the House Economics Committee.
ANZ is offering an annual fee waiver and a $800 gift card bonus on signing up, raising questions about whether it is locking customers into high fees before a crackdown on credit products comes into force in October.
The new design and distribution obligations will limit how banks can target products by requiring them to determine the needs of consumers.
Labor MP Andrew Leigh asked Mr Elliot whether he is “embarrassed” by the card, which advocates warn would fall afoul of the new rules.
“Twenty per cent is taking you into the world of payday lenders and loan sharks, not the world in which an esteemed major bank should be operating,” Dr Leigh said.
But the bank boss denied ANZ was trying to lock in customers, noting that 50 per cent of customers (on average) typically don’t pay interest.
“There are much higher rates out there in consumer finance and small business lending which start with a three and a four in front of them,” he said.
“It’s about [the credit card] being used appropriately … it’s entirely inappropriate to be using a credit card for permanent debt.”
Corporate regulator ASIC found in 2018 that consumers with high-interest-rate credit cards in 2016-17 were overrepresented in problematic debt indicators.
Calls for ACCC inquiry
Dr Leigh hopes ASIC will scrutinise offers like ANZ’s 20 per cent credit card under the new design and distribution obligations.
“It’s one thing to charge a mark-up over the cash rate, but it’s another to charge more than 200 times as much as the cash rate,” he told TND.
ANZ is not the only bank drawing the ire of consumer advocates, though.
Even RBA governor Philip Lowe has expressed frustration with the banks over credit card interest rates, which average about 14 per cent across the industry, according to Canstar data.
Financial Counselling Australia boss Fiona Guthrie wants the ACCC to investigate how banks determine their card rate, while consumer group CHOICE believes consumers are being “gouged” by the big banks.
Mr Sims said the consumer watchdog is ready and waiting to undertake a probe into credit card rates, within the purview of the ACCC.
“We need to talk to government about it,” he said.
Treasurer Josh Frydenberg is understood to be keeping a watching brief on the issue, but has not directed the ACCC to investigate yet.
Such an investigation could interrogate how banks set card rates and the operation of the market, while a government direction would unlock additional information gathering powers that would compel banks to participate in a probe.
Mr Frydenberg is currently facing pressure from the Victorian government to embark on credit card reform, after state treasurer Tim Pallas wrote to him earlier this month complaining about high rates.
Mr Pallas has suggested pegging credit card interest rates to the official cash rate – current rules cap credit card rates at 48 per cent (annually).
“We believe that consumers should not be exposed to an unreasonable or unfair burden as a result of excessive rates,” he said.
Mr Pallas met with Mr Frydenberg and other state treasurers on Friday.
Lowe: Consumers need to shop around
Dr Lowe has also expressed frustration with credit card interest rates, but believes the best way to address the problem is for consumers to shop around for a better deal.
“It is an issue, but the way to solve this is through people shopping around,” he told a parliamentary committee hearing in February.
The calls for action also come after total credit card debt shot upwards in February following the end of the early access to super scheme.
Credit card debt increased by $18.4 million, despite the value of purchases and number of outstanding accounts falling over the month, according to data published by the Reserve Bank last week.