Thirty Two Questions and Supporting Evidence    Submission Letter to Royal Commission April-2018   Defined Terms & Documents  

8th Question

Will the Royal Commission ask the Governor of the Reserve Bank if the RBA is in possession of empirical evidence that supports Dr. Malcolm Edey's contention (in the below verbal exchange with the Acting Chair of the Senate 'Economics Reference Committee' on 1 June 2017) that a viable opportunity exists for Credit Cardholders that have managed to 'chalk up' considerable debit, often across several Credit Cards, to consolidate those debts in a zero or introductory low interest rate Credit Card to ".... pay off their loans more quickly"?

Because Credit Card Issuers that offer Balance Transfer Interest-Free Period Offers are not Benevolent Bankers, they seek to poach profitable Credit Cardholders from other Issuers evident in Balance Transfer Offers.

"Dr Edey : We often get asked that question. I have heard that question put a lot in relation to mortgage interest rates, because there was a period of time, particularly during the GFC, where mortgage rates were not moving one for one with the cash rate as well. The response that we have always given to that is that the cash rate is a still a significant driver of those rates, so it is still having an influence. We take into account movements in the margins between those rates in determining what the appropriate level of the cash rate is. In principle, the same is true for the credit card rates. Referring back to what I said earlier, the amount of credit card debt and interest is much smaller than is the case for mortgages and for business loans, so it is not—

ACTING CHAIR: I can understand why from the perspective of a bank, and the Reserve Bank's perspective, it is smaller in terms of overall impact for the economy. But it is fair to say that for the people who are caught in things like debt traps and who are caught with credit card debt—and they may be small numbers—it is quite significant isn't it?

Dr Edey : It is significant for the people who are paying it. But it is just not particularly big for the economy as a whole. Another thing that has been going on over the last couple of years is that there are interest-free cards, or low-interest cards, that you can get by being prepared to switch if you are on a standard credit card rate. Increasingly, people have been doing that, or they have been paying off their loans more quickly so that they do not incur interest.

ACTING CHAIR: Hang on. That is a furphy of an argument. The point is, and you just agreed to this a minute ago: the gap is at a record high for low-rate cards as well as high-rate cards. For all cards, it is at a record level, isn't it? It is not as if I can go to a low-rate card and I will be okay. Even for the low-rate cards, the gap between that and the cash rate has now reached a record level.

Dr Edey : That gap has gone up as well. But there are also zero-rate cards. The banks do offer switching packages where you can get an interest-free card if you switch banks.

Mr Campbell : For a few months.

Dr Edey : For limited periods. What I am saying is that there are ways you can take advantage of the competition that is there to reduce your interest.

ACTING CHAIR: I just want to be very clear, Dr Edey, on what you are saying. I want to be able to walk away from this and get a good understanding. The point you seem to have been making is this—and I want to put this together; tell me if this is incorrect. Firstly, what you are saying, from the evidence that you seem to be presenting, does question some of the assertions that have been made as to why the gap is so high. The point you seem to be making is: 'Yes, we are talking'—and you are going to get us the exact figures, but the default rates are quite small; the non-performance rate is quite small. We want to get to the bottom of how and why the gap between credit card rates and the cash rate has reached a record level. We are asking you, Dr Edey, whether it is something the Reserve Bank is prepared to look at, and it seems to be that the answer you are giving us is, 'No.'

Dr Edey : No, I am not saying 'No' at all. All I am really saying is: somebody should look at it, and I think that we should consult with our colleagues in other agencies to determine who is the best placed to lead it."

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Supporting Documented Evidence re 8th Question

1.        Three months after Dr. Edey asserted (below) that a debt solution was available, ASIC requested five years data from 12 Credit Card Issuers, including the Four Pillars, Citibank, HSBC and Macquarie, to assess whether banks are deliberately targeting interest-free promotions at customers who are likely to end up taking longer to pay off their Credit Card debts; and

2.        Treasury, Submission to Senate Economics References Committee Inquiry into matters relating to credit card interest rates, 11 Aug 2015 notes (on page 5) that ".... 70 of the 95 credit cards the Reserve Bank of Australia (RBA) regularly monitors currently offer discounted balance transfers listed in Appendix B.

3.        There is Welter Of Evidence that some Credit Card Issuers, notably Citibank, offer Zero Balance Credit Cards (to other bank Credit Cardholders) that consolidate (other bank) Credit Cardholders cumulative debts to poach Credit Cardholders because Zero Balance Credit Cards are profitable because they target other bank Credit Cardholders with poor Financial Literacy Capacity?

4.        Below are extracts from print journalist, George Lekakis, succinct, scathing article for THE NEW DAILY on Jun 2, 2015  "Watchdogs quiet as banks gouge credit cards":