Choice wrong on $6.3b ‘stolen’ in card rates: banks - James Frost Financial Services Writer  -  Jun 10, 2020

Banks have rejected a claim from a consumer group that they have "stolen" $6.3 billion by keeping interest rates on credit cards steady or increased them while the cash rate has fallen, saying the two rates are not related while questioning the accuracy of its data.

The allegations of theft have been made by Choice chief executive Alan Kirkland, who called out several banks and credit card providers for raising interest rates on select cards while the overnight cash rate has fallen to a record low of 0.25 per cent from 4.25 per cent in 2011.

Choice CEO Alan Kirkland says credit card providers have stolen $6.3 billion from customers. 

“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.

“Some banks – including ANZ, Bendigo and St George – have even increased rates on credit cards. This is disappointing behaviour."

The industry has dismissed the exercise as a publicity stunt and sources have pointed out that higher rates on credit cards reflect the risk presented by unsecured credit. Others pointed out that the data used in the survey was selective or just plain wrong.

A spokesman for the Australian Banking Association said the websites of Choice and its data provider, Mozo, displayed many low cost options. The offers targeted by Choice and Mozo were typically premium products, which come with benefits customers were prepared to pay for.

“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 with interest rates as low as 10 per cent and no annual fee,” the spokesman said.

We encourage customers to talk to us about which credit card might be best for them.  — ANZ spokesman

The credit card business is being squeezed by the arrival of the buy-now-pay-later sector as many young consumers opt for the likes of Afterpay or Zip Money, combined with a debit card instead of a traditional credit card.

Data from the Reserve Bank released this week showed credit card spending plunged by $8.1 billion in April to $19 billion, or the lowest monthly spend since April 2011, while balances plummeted 11 per cent to $41.5 billion.

ANZ’s Rewards, Reward Black and Rewards Platinum credit cards were among those highlighted by Choice for not just charging a high rate but also for raising the rate by 1.45 percentage points to 20.24 per cent from 18.79 per cent over the past four years.

A spokesman for ANZ defended the pricing on its credit card products, saying many of its customers valued the features they provided and only one third of its customers paid interest regularly.

“The cards selectively highlighted by Choice are our rewards cards that include features such as rewards points and travel insurance ... we encourage customers to talk to us about which credit card might be best for them,” the spokesman said.

A spokesman for Bendigo Bank said Choice's data was wrong and compared the rates of two different cards.

Bendigo Bank also challenged the link made between the cash rate and the rate charged on credit cards, while pointing out that the bank was the first Australian institution to offer use of a debit card.

“Credit cards are unsecured lending products and feature higher operating costs and higher risk than fixed term, secured lending products such as mortgages,” the spokesman said.

“We offer several low interest rate credit cards for customers who have the ability to easily switch products to suit their individual needs at any time."

Inaccurate data

Among the other credit card providers singled out by Choice for raising their credit card rates was retailer Coles and its Low Rate Mastercard offering. Choice says that, between April 2016 and May 2020, it raised the interest rate by 3 percentage points to 12.99 per cent from 9.99 per cent.

A spokesman for Coles said the data failed to take into account a brief marketing campaign over a period of several months when the rate was discounted. The spokesman defended the rate of 12.99 per cent as competitive when compared with other cards charging 20 per cent or more.

“The headline rate on Coles’ Low Rate Credit Card has been 12.99 per cent since September 2015. The 9.99 per cent rate used as a comparison by Choice was a promotional offer for new customers between February and June 2016,” the spokesman said.

Coles wasn't the only credit card provider to highlight Choice's inaccurate data. Citi said Choice's claim that it raised rates on its Prestige credit card line by 0.75 of a percentage point to 21.49 per cent from 20.74 per cent was incorrect.

A spokeswoman for Citi said the rates were raised only half a percentage point to 21.49 per cent from 20.99 per cent over the period specified.

At a senate hearing into the federal government’s response to COVID-19 two weeks ago, neither Reserve Bank governor Philip Lowe nor Australian Prudential Regulation Authority chairman Wayne Byres expressed any concern about high rate credit cards.

Although Dr Lowe agreed that the rates were “extraordinarily high” and he could not “understand why”, he also said there were several “reasonably priced products” and encouraged consumers to “shop around” as there were more than 200 cards on offer.

Mr Byres said the issue of high rate credit cards was not within the prudential regulator’s mandate as it was concerned first and foremost with stability, but he said he was “puzzled” as to why consumers on higher rate cards didn’t seek out better deals from credit card providers.

James Frost writes about banking, funds management and superannuation.