From: Phil Johnston [mailto:scribepj@bigpond.com]
Sent: Friday, 16 December 2011 10:33 AM
To: 'RBAInfo'
Subject: RE: Seeking data on the percentage of credit card users who repay their outstanding indebtedness in a particular month, and a break-up of those who do not [SEC=UNCLASSIFIED]

Attention: Sharon van Etten

Dear Sharon,

Hopefully Last Friday or last Monday you rec’d three CDs from me which auto-open at my letter to you dated 8 Dec ‘11 which responded to your below email.

Yesterday I posted three replacement CDs to you which auto-open at my response letter to you dated 8 Dec 11 because:

1. at least one important URL link, namely the above attached Attachment ‘E’, would not open because I had made the file name too long; and

2. I created a new Attachment ‘H’ titled “All smoke and mirrors” (also attached above) and added a Print Screen for each page in www.australia.creditcards.com for the 6 credit cards that I reviewed in “All smoke and mirrors” e.g. NAB’s Low Rate Visa Card (final above attachment), because I believe that the RBA or ASIC should be investigating if australia.creditcards.com is being paid by its “Bank and Issuer Partners” (Credit Card Issuers listed in the above attachment) because australia.creditcards.com is patently lying about the interest rates for several of the cards it recommends, as on some occasions the interest rate on cash advances is materially higher than the interest rate listed by australia.creditcards.com. My concern is heightened because it presents itself as an objective, impartial consumer protection website. My new attachment ‘H’ “All smoke and mirrors” elucidates my concerns.

I understand that –

1. ASIC has responsibility for market integrity and consumer protection across the financial system, including payment transactions;

2. ASIC administers the Corporations Act 2001 and regulates Australian corporations, financial markets, clearing and settlement facilities;

3. the functions of ASIC include ‘inter alia’ investigating and enforcing corporate and securities law;

4. a Memorandum of Understanding sets out a framework for cooperation between ASIC and the RBA; and

5. the National Consumer Credit Protection Bill 2009 (Credit Bill) enhances consumer protection through criminal penalties for licensee misconduct, which can include possible imprisonment for up to 2 years for serious breaches of the responsible lending conduct requirements and civil penalties for licensee misconduct, which enable ASIC to seek heavy fines of up to $220,000 for an individual and $1.1 million for a corporation.

I would appreciate it if you could mark the initial three CDs that I posted to you as “Superseded” and replace them with the three CDs that you might receive today or by this Monday.

Regards

Phil Johnston aka Bank Teller
0434 715.861
Skype enabled: muggaccinos

From: RBAInfo [mailto:RBAInfo@rba.gov.au]
Sent: Thursday, 10 November 2011 2:27 PM
To: 'Phil Johnston'
Subject: RE: Seeking data on the percentage of credit card users who repay their outstanding indebtedness in a particular month, and a break-up of those who do not [SEC=UNCLASSIFIED]

Dear Mr Johnston,

Thank you for your enquiry about the proportion of credit card users who do not repay their outstanding balances in full and their demographic characteristics. I apologise for the delay in responding to you.

Information linking credit card repayments to demographic information is generally difficult to obtain. We are, however, able to provide some of the information you seek from our recently completed Consumer Payments Use Study (see http://www.rba.gov.au/publications/consultations/201106-strategic-review-innovation/pdf/201106-strategic-review-innovation-results.pdf). This study collected data on all payments made by a representative sample of Australian adults over a week-long period in late 2010. It also asked the respondents questions about their payments behaviour, including how often they made credit card repayments.

The study results indicate that around 47 per cent of Australian adults have a credit card. Age appears to play a role in credit card holding, with around 24 per cent of adults in the 18-29 age group holding a credit card, compared to around 58 per cent for adults aged 30-59 and 46 per cent for those aged 60 years or more.

Around 61 per cent of credit Cardholders pay off the closing balance of their credit card bill in full by the due date ‘every month’. At the other end of the spectrum, around one-quarter of credit Cardholders pay off their credit card in full ‘not very often’ or ‘hardly ever/never’. It is interesting to note that those credit Cardholders who make repayments in full less frequently also tend to make a smaller proportion of their total purchases using credit cards. For example, those who pay off their credit card in full ‘not very often’ or ‘hardly ever/never’ together make around 9 per cent of their purchases by credit card, whereas those who pay off their credit card in full ‘every month’ make around 23 per cent of their purchases by credit card. One possible explanation for this is that Cardholders who make less frequent repayments in full are avoiding additional interest charges by substituting other payment methods where they can. It is also possible that these Cardholders are limited in their ability to make additional purchases on their credit card because of credit limits.

Using demographic information on the survey respondents, we can also examine the characteristics of those respondents in the low-repayment categories of ‘not very often’ or ‘hardly ever/never’; for example, looking at the distribution by age and income we find:

· the majority of Cardholders in the low-repayment categories are middle aged: 28 per cent of Cardholders in the 30-39 and 40-49 age groups do not often pay off their monthly balance in full, compared to 11 per cent in the 18-29 age group and around 16 per cent in the 50-59 and 60-plus groups; and

· 26 per cent of Cardholders in the low-repayment categories earn personal annual income under $20 000, while 13 per cent have an annual income of $80 000 and above. The comparable shares for all survey respondents are 37 per cent and 10 per cent, respectively.

Another source of data that may be of interest to you is the Reserve Bank’s retail payment statistics, available at: http://www.rba.gov.au/payments-system/resources/statistics/index.html. In particular, Table 1, Credit and Charge Card Statistics, gives information on repayments, balances accruing interest and credit limits. These data can be used to shed light on the broad trends in credit card purchases and repayments. And you can find some commentary on these trends in the annual reports of the Payments System Board, available at: http://www.rba.gov.au/publications/annual-reports/psb/index.html.

Your email also raises a number of concerns about how credit card accounts are operated. The Payments System Board of the Reserve Bank has no regulatory power over these aspects of credit cards. You may, however, be interested in recent amendments made to the National Consumer Credit Protection Act 2009. These amendments include changes to:

· force credit card lenders to allocate repayments to higher interest debts first;

· stop lenders from distributing pre-approved offers for increased credit;

· prevent lenders charging fees to consumers who go over their credit limit unless they have asked for this service;

· make it mandatory for credit-card applications to include a clear summary of key account features; and

· require lenders to clearly warn consumers on their monthly credit card statement of the consequences of only making minimum repayments.

These amendments will come into effect next year. You can find more information about these amendments at: http://www.treasury.gov.au/consumercredit/content/default.asp.

Regards

Sharon

From: Phil Johnston [mailto:scribepj@bigpond.com]
Sent: Tuesday, 25 October 2011 19:35
To: RBAInfo
Subject: Seeking data on the percentage of credit card users who repay their outstanding indebtedness in a particular month, and a break-up of those who do not

Sharon

I refer to my ‘phone call to you this morning.

After retiring from a 37 year career at CBA, where I dealt with former RBA colleagues in the late ‘70s at what was then known as Note Issue, I now spend part of my time pursuing causes with Govt and bureaucracy that I think have merit.

When I worked in CSB HO in the early ‘80s there was the “80/20 Rule” (Pareto’s Principle) where 80% of profit from savings accounts came from 20% of CBA’s customers.

I suspect that a similar rule apples with credit cards.

Prima facie I see merit in adopting the American Express Card convention (may require amending the banking acts) to obligate all Credit Card Issuers in Australia to require all their credit card customers to repay their TOTAL outstanding debit balance monthly in arrears, because the banks and the more intelligent and well off credit card users are exploiting the less educated lower socio-economic users who pay hundreds of millions of dollars annually in exorbitant interest margin costs (well above the bank's cost of funds), whereupon the gap between the 'Haves' and the 'Have Notes' is further widening.

We are seeing a lot of recent evidence of the ‘Have Nots’ protesting with riots in England a few months ago and ‘Occupy Wall Street’ burgeoning into many large cities.

The primary benefit of holding a credit card should be to enable the user to purchase items without furnishing cash where their credit rating can be instantaneously checked by the merchant. It should not be for the less knowledgeable to be subsidising the more knowledgeable, which is presently the case.

I seek data for a particular month (or quarter) which shows:
1. Number of cards repaid total indebtedness and dollar amount of those repayments.
2. Number of cards > or =50% of total indebtedness and dollar amount of those > or = 50% repayments.
3. Number of cards <50% but >5% of total indebtedness and dollar amount of those <50% but >5% repayments.
4. Number of cards <=5% of total indebtedness and dollar amount of those <=5% repayments.

Citi’s Visa Westpac charges a $99 annual fee, ‘dangles a carrot’ of no interest on purchases for 6 months, but a Cash Advance Rate of 21.8% p.a.

Westpac charges a $45 annual fee, 13.49% p.a. on purchases and Cash Advance Rate of 21.49% p.a

Other providers promote rewards programmes and charge higher fees and interest.

In light of recent unrest from some of the ‘Have Nots’ and because the interest rates applied are well above the providers cost of funds, I believe that the RBA has an obligation to understand the demographics of those customers who are paying for the credit card product and materially contributing to banks profits, and those that are not so contributing.

Hence, if the RBA is unable to provide the above sought data or something similar, because the Banks do not report it to the RBA, would the RBA seek it from the major Credit Card Issuers as a one-off.

Cheers

Phil Johnston aka Bank Teller
0434 715.861
Skype enabled: muggaccinos