Persistent Revolvers

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]

"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%)

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:

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