Defined Terms and Documents       

Persistent Revolvers (discussed in Chapter 5 and Chapter 20) generally Lack Financial Acumen and possess low Financial Literacy Capacity *** identified in Graph 7 'Cardholder repayment behaviour' of RBA Submission to the Senate Inquiry into Matters Relating to Credit Card Interest Rates - Aug 2015 -

(i)         pay a 17.22% interest rate (average based on ASIC Money Smart) on 100% of their Credit Card Debt Accruing Interest with an average of 5½ Credit Cards per Persistent Revolver (up to 20 Credit Cards could be held by a single Persistent Revolver) - refer Chapter 7, occasionally on aggregate Total Amount Owing that exceeds $100,000 according to anecdotal evidence from 'Credit Card Distress' Authorities in Quotes from reputable Credit Card Distress Authorities about unconscionable advertising;

(ii)        forfeit their Interest Free Period;

(iii)       pay Late Payment Fees and may also pay Over-the-Limit Fees;

(iv)       experience Extreme Financial And Emotional Distress;

(v)        account for 38.13% circa of all Revolvers (Graph 7 below and table thereunder);

(vi)       account for 12.58% circa of all Credit Cardholders (Revolvers = 33% of Credit Cardholders. Persistent Revolvers = 38.13% circa of Revolvers. 38.13% of 33% = 12.58% circa of all Credit Cardholders, being one in every eight Credit Cardholders)

(vii)      pay 80% circa of all Interest and Penalty Fees Revenue generated from Credit Card Products;

(viii)    held 5,201,380 Credit Cards circa of the 16.699 million Credit Cards in Australia in 2017;

(ix)       in 2017 circa paid $5,471,110,000 in agg. Credit Card interest annually on 5,201,380 Credit Cards owned by Persistent Revolvers

(x)        paid on ave. $5,159.80 circa of interest and penalty fees in 2017; and

(xi)       account for 12.58% circa of the 7,515,000 Credit Cardholders (June 2016), namely 945,706 [cell b36] Credit Cardholders (ASIC 'Credit card debt clock' 27-Apr-17) that contribute a whopping 80% circa of Interest And Penalty Fees Revenue levied by Credit Card Issuers annually; and

(xii)     "13 per cent of people pay only the minimum repayment off their account each month.  Australians have a collective credit card debt of almost $1,500 for every man, woman and child".

***    The above information is drawn from calculations in Excel file 'Credit Card Statistics' based on -

           (a)      the below Commonwealth Treasury and RBA quotations that Revolvers account for 33% circa of Credit Cardholders;

           (b)      anecdotal evidence from 'Credit Card Distress' Authorities, in particular Financial Counsellors, regarding the magnitude of Credit Card Debt Accruing Interest (and the number of Credit Cards owned) held by many of the Credit Cardholders that seek their financial counsel; and

           (c)      the below RBA Graph 7 and table thereunder.

Four Types of Revolvers informs that not all Persistent Revolvers are on low incomes with poor Financial Literacy Capacity.

A mere 13.58% circa of all Credit Cardholders (issued in Aust), those identified by the RBA as Persistent Revolvers incurred $14.56 billion circa of that $18.2 billion interest debt in 2021.


The above pie chart does not identify % for Interchange Fees (in black) which seems to be 14%

The above 'pie chart' (on RHS) appears in a journal report titled "Who Pays for Credit Cards?" dated 2001 which displays a break-up of Card Issuers' Revenues for the aggregate of Visa, MasterCard and Discover cards in the USA.  It shows that net U.S. Interest Revenues of 75% and associated Penalty Fees Revenue (Late Payment Fees and Overlimit Fees) of 6.3% and Cash Advance Fees of 5.4% aggregate to 86.7% of U.S. Card Issuers' Annual Revenue.   Interchange Fees charged to the Merchant are only 10.7%.

Below is the only reference to Credit Cards in the RBA's Financial Stability Review - Oct 2015

"In contrast, at around 2–3 per cent over recent years, write-offs on credit card debt and other personal lending have been higher, consistent with some portion of this lending being extended to borrowers with a relatively weak credit profile and on an unsecured basis. Although credit card and personal lending is riskier, it represents only a small share of banks’ total domestic loans."

The term, Persistent Revolvers, was identified by the Reserve Bank in its Submission to the Senate Inquiry into Matters Relating to Credit Card Interest Rates - Aug 2015  -  Submission 20It appears in the below Graph 7 titled "Cardholder Payment Behaviour" on page 6.  The explanation of (v) to (xii) [listed above] is set out below.

 

Chapter 2 - Overview of the Australian credit card market notes:

2.16      The RBA advised that the proportion of revolvers is higher among low-income households and when high-income households do fall into the revolver category, they are more likely to be 'occasional revolvers' as opposed to 'persistent revolvers'.[18]

McKinsey Report -  May 2014 categorizes 'Five Segments' of Credit Cardholders in the USA.  Below is an extract from the 'Third Segment', namely 'Financially stressed':

"Carry heavy credit card debt—nearly four times the average, at USD$7,453.

Revolvers

Below are two an extracts from RBA Submission to the Senate Inquiry into Matters Relating to Credit Card Interest Rates - Aug 2015:

"Seventy-three per cent of credit card holders participating in the survey reported that they typically paid off their account in full by the due date each month (within the interest-free period).  While this implies that only 27 per cent of cardholders pay interest charges, some industry estimates suggest that a slightly higher proportion (between 30 and 40 per cent) of cardholders pay interest; it is possible that survey responses reflect hoped-for rather than actual behaviour.  Subject to this caveat, the survey suggests that the proportion of Revolvers is somewhat higher for lower-income households than higher-income ones (Graph 7)."

 

"In the June quarter of 2015, new credit card transactions averaged around $24 billion per month.  At the end of June, the total level of credit card debt was $51.5 billion (Graph 11).  Of this amount, $33.1 billion, or around 65 per cent was bearing interest.  A simple calculation would suggest that around 75-80 per cent [(51.5–33.1) ÷ 24 ≈ 0.77%] of transactions on credit cards do not accrue interest.  That is, interest-paying ‘Revolvers’ account for about 30-40 per cent of accounts, about 20-25 per cent [1.00 - 0.77 0.23%] of transactions, but close to two-thirds of the outstanding stock of debt.9"

Revolvers (Occasional Revolvers + Persistent Revolvers) account for 33% circa of Credit Cardholders based on -

"..... That is, interest-paying ‘Revolvers’ account for about 30-40 per cent of accounts, ....." and

"According to a 2013 RBA survey, only around 30 per cent of credit card users reported that they pay interest on their credit card balances (the ‘Revolvers’).  However, the share of outstanding balances that actually attract interest is higher, at around two-thirds.".

    Occasional Revolvers Persistent Revolvers ORs PRs  Agg.  % of PRs
1st (lowest) Household income quartile      45% 55% 34 42        76 55.3%
2nd (second lowest) Household income quartile   55% 43% 46 35         81 43.2%
3rd (second highest) Household income quartile   66% 33% 44 22         66 33.3%
4th (highest) Household income quartile   80% 20% 46.5 11.5         58 19.8%
    246% 152%        
    251% 61.87% Occasional Revolvers        
    149% 38.13% Persistent Revolvers        
    400% 100.00%          

 

Casual empiricism of the above (Graph 7) as calculated in the immediately above table suggests that -

*           almost two thirds of Revolvers, referred to by the RBA as Occasional Revolvers, pay interest occasionally.

*           over one third of Revolvers, referred to by the RBA as Persistent Revolvers, pay 17.22% Interest (average) on 100% of their Credit Card Debt.

 

"This estimate is from the 2016 Credit Cards Market Study by the UK Financial Conduct Authority (FCA). The FCA defined systematic minimum repayment behaviour (Persistent Revolvers) as customers who make nine or more minimum repayments over 12 months. There are no published Australian estimates of the proportion of credit card consumers who are Persistent Revolvers and there is no single definition of Persistent Revolvers in Australia." 

Revolvers represent 33% of Credit Cardholders transactions.  Revolvers carried $32.183 billion (see above graph as at July '16) of interest accruing Credit Card debt at an average per Credit Card debt of $6,095 paying interest @ an ave. 17% p.a. = $1,036 pa. interest on average per Credit Card used.  This $1,036.20 pa. circa takes no account of Late Payment Fees.

Table 'A'                           

 
Agg Credit Card debt - July '16  $32,183,000,000
Total number of Credit Cards  $16,000,000
Revolvers

33%

 $5,280,000.00
Ave debt per Card per Revolver    $6,095.27
Ave. interest rate

 17%

Ave. interest per Card per Revolver  $1,036.20

 

 

Table 'B'

 
Total Revolvers 33%    of all Credit Cards
Persistent Revolvers 38%    of all Revolvers
Total Persistent Revolvers 12.58%    of all Credit Cards
Total Persistent Revolvers hold

             2,006,400   

Credit Cards

The immediate above 'Table B' evidences that 12.58% of Credit Cards are held by Persistent Revolvers (Revolvers = 33% of Credit Cardholders. Persistent Revolvers = 38% of Revolvers. 38% of 33% = 12.58%)

InfoChoice.com.au notes in 'Low income families are spending on credit cards':

 

         "13 per cent of people pay only the minimum repayment off their account each month. Australians have a collective credit card debt of almost $1500 for every man, woman and child"

 

"Regulatory tricks, to their credit, in our interest- SMH, -  Jan 6, 2014 includes:

"According to an ANZ survey quoted by the academics, 13 per cent of people pay only the minimum repayment."

Australia's nomenclature for USA McKinsey's 'Financially stressed' Credit Cardholders is Persistent Revolvers that "Carry heavy credit card debt—nearly four times the average with unpaid debt. 

 

Occasional Revolvers therefore contribute approx one fifth (20% circa) of Interest and Penalty Fees Revenue.

 

The above Australian calc of AUD$6,095 average debt is per Credit Card held of the 5,280,000 (33% of all Credit Cards) held by Revolvers of the 16.09 million Credit Cards owned by Australians.  The above ave of USD$7,453 from the McKinsey Report  represents agg. debt per Credit Cardholder amongst the 'Financially stressed'. 

"Australia's agg. Credit Limits for its 16.09 million credit cards reached a record high of almost $145.55 billion as of June 2015.  This averages to a Credit Limit of $9,048 for each of the 16.09 million credit cards currently in circulation."

67% circa of all Credit Cardholders, being Transactors, enjoy a Convenient Free Ride.  Those Free Riders'  Revolving Lines of Credit are paid for by 33% circa of Credit Cardholders that are Revolvers of which 38% of Revolvers are Persistent Revolvers that -

*        hold 12.58% circa of the 16.1 million Credit Cards in Australia; and

*        pay 80% circa of Interest and Penalty Fees Revenue - displayed in Figure 3 and Figure 1 above and also in Chapter 8

The Pareto Principle, colloquially known as the '80-20 Rule', is that 20% of customers generate 80% of the revenue for a particular business.  The Pareto Principle has been 'blown away' by Credit Card Issuers because 12.58% of Credit Cardholders (not 20%), namely Australia's Persistent Revolvers (referred to by McKinsey in the USA as 'Financially stressed'), identified in the above RBA Graph 7 "Cardholder Payment Behaviour" (in RBA report RBA Submission to the Senate Inquiry into Matters Relating to Credit Card Interest Rates - Aug 2015), pay 80% of Interest and Penalty Fees Revenue

 

Mindful that the highest -

*          Purchase interest rate is 25.9% from "Lombard Visa Card Classic; and

*          Cash Advance interest rate is 29.49% from G.E. Money's "Go MasterCard",

one ponders whether LOAN RATE STICKINESS: THEORY AND EVIDENCE - June 1992 is still a concern of the Reserve Bank, but it was in 1992 - at least to the two authors:"

The RBA would likely retort that it de-regulated loan and deposit interest rates from 1980 following the recommendations in the Campbell Committee Report.  Chapter 17 below notes:

"The Campbell Committee was established in 1979 and reported in 1981.  The recommendations of the inquiry were targeted at ..... the abolition of direct interest rate and portfolio controls on financial institutions.  Campbell did not recommend removal of any powers held by the Reserve Bank to regulate interest rates or demand financial information.  The Campbell recommendations were made following an extended period of high interest rates.  High deposit interest rates by NBFIs existent circa 1980 are no longer an impediment to regulating credit card interest rates.  The abovementioned reference to Chapter Nine (in Chapter 15 above): 'Stability and Payments' of the Wallis Enquiry noted "the RBA should retain overall responsibility for the stability of the financial system, the provision of emergency liquidity assistance and for regulating the payments system." .."The ACCC and the PSB should monitor the delivery fees charged on credit and debit cards while the ACCC should monitor the rules of international credit card associations to ensure they are not overly restrictive."

Below is an extract from Consumer Affairs Victoria -  Regulating the cost of credit which evidences that in the past if de-regulation did not achieve the desired results, then re-regulation followed.  But not with regard to re-introducing a max interest rate cap on Credit Cards, notwithstanding that the spread between the current Cash Rate of 1.5% and the Credit Card  Purchase Interest Rate of 20% is 18.5%.  (As at April 2017, the highest Purchase interest rate is 25.9% from "Lombard Visa Card Classic" and the highest Cash Advance interest rate is 29.49% from G.E. Money's "Go Mastercard"):

"The tide of utilitarianism rose slowly, and a lengthy campaign was necessary before the financial deregulation of 1854, which abolished the British interest rate cap.  However, one act of deregulation cannot quell an argument that has been going on for millennia. Over the following century the tide gradually turned towards re-regulation, culminating with detailed requirements imposed on the financial sector (particularly the banks) during and immediately after the Second World War. We now trace the gradual lead-up to this second phase of regulation."

The Productivity Commission's Staff Working Paper found that:

"Nearly half of the population were assessed at either levels 1 (the lowest level) or 2, both of which are below the minimum level deemed necessary to participate in a knowledge-based economy (level 3)." 

An analysis of Numeracy and Literacy Skills of Australians is contained in Chapter 1.

Of the Four Types of Revolvers, the initial two types would be candidates to be Eligible Persistent Revolver Plaintiffs.  It would be necessary to 'Test/Measure' potential Eligible Persistent Revolver Plaintiffs rigorously to ensure that each met the requirements in (2.) d) of Eligible Persistent Revolver Plaintiffs.

 

The Commonwealth Treasury noted in 2010 in its submission to National Credit Reform: Enhancing Confidence and Fairness in Australia’s Credit Law that the Standing Committee on Economics found that ‘there was anecdotal evidence that in some cases at least the impost of high default fees is marginalising people who are already struggling to feel they belong in society.22

Below are extracts from Smart cards. Dumb card holders? -  12th March 2014  -  by Alan Thornhill:

"ASIC says over half a million Australians carry more than $5,000 in credit card debt.

Yet, ASIC says, many of those card holders are middle income earners, managers and people with a degree.

It said research by Roy Morgan shows 22 per cent of Australians over the age of 18 earn more than $70,000 per year, and these people make up 42 per cent of those who carry credit card debt over $5,000.

In addition, the 12 per cent of the population are managers and managers make up 26 per cent of those with debt above $5,000.

And, while 42 per cent of Australians have a degree or diploma they represent 49 per cent of those carrying $5,000 or more in credit card debt.

“People might be excellent managers in the workplace, but they aren’t necessarily managing their finances in the best way possible.’

Around 2 million Australians do not pay off their personal credit card debt in full each month, rising from 24 per cent of personal credit card holders in 2009 to 27 per cent of personal credit card holders in 2013.

“Australians have over $34 billion owing on credit cards where interest is being charged and pay $6.2 billion a year in interest."

Below are extracts from High incomes run up relatively less debt on major cards  -  Roy Morgan - Dec 12, 2016:

"In the 12 months to October 2016, holders of major cards (VISA, MASTERCARD, AMEX) intended to carry forward to their next statement an average monthly debt of $19 billion between them. The main contributors to this were the lower-income card holders, who on average owed an amount equivalent to a much higher proportion of their incomes than the higher-income groups. These are the latest findings from Roy Morgan’s Single Source survey of over 50,000 consumers pa which includes detailed coverage of over 39,000 with major cards.

The proportion of cardholders who carry nothing or very little forward to their next statement increases with income."

CHOICE is concerned that low income earners are disproportionately affected by the costs of credit cards. Persistent Revolvers are overwhelmingly from low income households.18 Interest payments made by these consumers help subsidise the rewards programs offered to transactors, who tend to be wealthier and attracted to high-interest cards that offer redeemable points as prizes for frequent usage.


See:

Revolvers, Occasional Revolvers and Transactors.

Why does the Payments System Board of the Reserve Bank believe that it has no regulatory power to seek Credit Card Issuers to provide financial data which identify the demographic cohorts that contribute 80% circa of Interest And Penalty Fees Revenue?