Watchdogs quiet as banks gouge credit cards    THE NEW DAILY    Jun 2, 2015    George Lekakis

Amid mounting evidence of bank gouging on credit cards, Australia’s corporate watchdogs are failing to protect consumers.

A revelation that the gap between credit card interest rates and the official cash rate has ballooned to record levels was not the only alarming aspect of RBA assistant governor Malcolm Edey’s testimony to a senate hearing on Monday.

Dr Edey’s comments during the hearing also highlighted fundamental flaws in the way banks and other financial institutions are regulated in this country.

Most Australians with credit cards, especially those who revolve debt each month, learned a long time ago that banks are ruthlessly efficient at denying rate relief to cardholders following official rate cuts.

As reported previously in The New Daily, the average credit cardholder is forced to pay about 17 per cent to carry debt, even though the cash rate has hovered below three per cent since May 2013.

The truly big revelation in Dr Edey’s comments to parliament was that no regulator in the country has recently seen fit to investigate the gaping margin between credit card costs and the prices at which they are sold.

In response to questions from Labor senator Sam Dastyari and independent senator Nick Xenophon, Dr Edey acknowledged that it was an important issue that should be examined by a regulator, but he wasn’t sure which one.

This raises another issue, namely the failure of the Council of Financial Regulators – which the Reserve Bank coordinates – to identify credit card pricing as an area worthy of inspection by regulators.

The RBA and the Australian Prudential Regulation Authority have the power to access sensitive data on the banks’ credit card businesses and even though a persuasive case already exists that price gouging is occurring, no regulator has fired a salvo.

If the Council was doing its job properly the knowledge of the banking regulators would have already been shared with the competition watchdogs – the Australian Securities and Investments Commission and the Australian Competition and Consumer Commission.

The fact that it hasn’t underlines a major flaw in the current regulatory framework.

The Council’s work in the last two decades has been preoccupied with enhancing stability in the financial system – a noble cause – but invariably actioned at the expense of competition issues that have simply been ignored.

That probably has a lot to do with the RBA’s co-ordinating role in the Council’s work and the central bank’s alarming indifference towards competition as a policy concern.

This rather lazy perspective on competition in the Australian financial services market is reflected in the attitudes of the central bank’s most senior office bearers.

When Reserve Bank Governor Glenn Stevens was asked in February by a parliamentary committee to explain why banks weren’t passing official rate cuts to credit card holders, the RBA boss offered the following limp response:

With respect to credit cards, those loans typically do not vary much at all in either direction with the cash rate … I do not think we should be encouraging people to borrow on credit cards. It is an extremely expensive way of borrowing.

While the Governor’s answer amounted to a set of observations rather than an explanation, it also implied that credit card holders would just have to wear whatever rates lenders dished out to them.

If part of the RBA’s mandate is to protect the welfare of Australians in its execution of monetary policy, the Governor’s commentary on credit cards pricing is a fail.