Banks Refuse To Cut Credit Card Rates
Sydney Morning Herald
Saturday December 12, 1998
Banks have refused to cut interest rates on credit cards despite falls in official rates, mortgage and personal loan rates.
Ahead of the traditional Christmas splurge with credit cards, all major banks said rates were under review. But few analysts expect them to fall.
Consumer groups have criticised the banks, calling on them to pass on the Reserve Bank's 0.25 percentage point rate cut of last week.
However, the banks say their cards, compared with other credit cards, are cheap.
The Financial Services Consumer Policy Centre's director, Mr Chris Connolly, said there had never been a cut in credit card interest in November or December.
"Overall, it's bad news for consumers . . . and we are still seeing an increase in personal debt levels. They should pass on rate cuts, but traditionally they don't pass them on very quickly.
"Basically, credit cards should have come down six or seven times during the last three years and they haven't."
The National Australia Bank's spokesman, Mr Haydn Park, defended the banks' lethargy on cutting credit card rates: "If you look at interest rates in terms of competition, banks are in a band of 14 per cent to 16 per cent, but if you look at others like the Coles Myer cards, they are closer to 20 per cent."
Interest rates on credit cards provided by banks are on average 15.3 per cent, according to the Reserve Bank.
This is close to three times some mortgage rates on offer. Rates have been at current levels since September 1997.
During the past 2 years, official interest rates have fallen by 2.75 percentage points. But credit card interest rates have fallen by half that, according to the Reserve.
The Australian Bankers' Association yesterday urged consumers to use their credit facilities wisely during the Christmas period.
Its chief executive, Mr Tony Aveling, said: "We all tend to spend more during this time of year, so it is important that consumers be aware of their credit limits and stay within their overall budget."
Earlier in the year, the Commonwealth Bank admitted that interest rates on credit cards were higher than necessary to subsidise loyalty programs. Credit card use had surged during the past 18 months as loyalty programs increased.
Reserve Bank figures show that during September a record $10.1 billion was lent on credit cards, $1.8 billion more than 12 months earlier.
The amount available to consumers was also a record at more than $30 billion.
Customers are also less likely to change credit cards on the basis of interest rates, so there is less pressure on banks to drop them.
It helped banks make a 40 per cent return on every dollar invested in their credit card business, one analyst said.
© 1998 Sydney Morning Herald