Keep The Plastic In Your Pocket, Warn Watchdogs

The Sunday Age

Sunday October 19, 2008

Tom Reilly

AUSTRALIANS are being urged to slash their spending on credit cards as banks continue to refuse to pass on the recent rate cut to customers.

While banks last week turned to the Government for taxpayer-funded deposit guarantees to make them more competitive with international players, they have increased their profit margins by maintaining and even raising card rates and fees, despite a series of cuts by the Reserve Bank.

The Commonwealth Bank is the only major lender to have announced a credit card rate cut. Still, it's only .6 of a percentage point, compared with the Reserve Bank's cut of 1 percentage point - and it won't be effective until November 4.

In just over 12 months from August last year, the average rate charged on cards has surged to 19.9% from 18.2%, according to the RBA.

Yet in that time the official Reserve Bank rate has been cut to 6% from 7.25%.

"Consumers are being taken advantage of by banks, who tend to be very quick to raise interest rates but a lot slower when it comes to lowering them," said Carolyn Bond, joint executive officer of the Consumer Action Law Centre Victoria.

Based on this month's rate cut of 1 percentage point by the Reserve Bank, Australians are now being slugged an additional $1million a day in interest payments.

Although there has been significant pressure from all sides of politics for banks to pass on rate cuts to mortgage holders, similar calls for credit-card holders have been ignored.

Christopher Zinn, of advocacy group Choice, said there was no doubt that although credit card lenders were quick to raise interest rates, they were a lot slower at lowering them.

"Lenders are able to get away with this because consumers probably don't pay enough attention to the amount they are getting charged and there doesn't seem to be the same political pressure that we've seen put on banks in regard to mortgages to pass on lower rates," he said.

Steven Anderson, the head of research at Infochoice, which monitors credit providers, said that lenders could afford to give customers a better deal.

"Clearly these lenders are not doing all they can to pass on a better deal to their customers, a situation which is costing Australian consumers tens of millions of dollars each month," he said.

A chorus of financial advisers suggests that cardholders need to rein in their spending and prudently analyse their repayment habits, a message that is slowly getting through to consumers, according to figures released by the Reserve Bank on Thursday.

The bank data showed that the average card balance was $3141 in August, up just 4.6% over the past year and the slowest growth since records began 14 years ago. Australians' total credit card bill is more than $40 billion.

There is still concern about the way cards are used. There are almost 13 million credit card accounts in Australia and at least a third are believed to be rolling over, or revolving - that is, only paying the minimum amount due, says independent analyst Mike Ebstein of MWE Consulting.

Another third, known as "transactors", pay their balance in full within the interest-free period and about 40% sometimes do and sometimes don't - that is, they are "failed transactors".

Ebstein says picking the right card to suit your needs is the key to making the card benefit you, rather than the bank.

There are two basic types of cards: high interest rate cards that offer rewards, such as frequent flyer points and interest-free days, and cards with no loyalty programs but lower interest rates or interest-free periods.

"It's important for consumers be honest with themselves and frank about what kind of card user you are," he said.

"If you don't spend much on the card, it's a waste of time looking at reward programs because you are never going to spend enough money to justify the fee. If you're a transactor and never pay interest there's no point looking at the interest rate, you should focus on the fees, how many interest-free days you get and the rewards."

"If you don't spend much on a card, any reward schemes will be a waste of time, so look for rates and fees."

Harry Senlitonga, senior analyst with bank monitors Cannex, said people should consider switching providers if they were unhappy with their rate.

"If people were to start transferring their debts from an expensive card to a cheaper one, that would cause those lenders with the highest rates to bring them down," he said.

"It would also put pressure on creditors to be more competitive and reduce rates when the RBA does so.

"While lots of people are paying around 20% or even more, there are 97 cards which currently have less than 15%."

How they stack up

Rating four of the most

popular cards

Amex, Qantas Premium

Interest rate 20.49%

$249 annual fee

1.25 Qantas frequent flyer points for every dollar spent

ANZ Frequent Flyer Visa

Interest rate 20.74%

$95 annual fee

Up to 44 days' interest-free credit on purchases

One Qantas frequent flyer point for every dollar spent up to $1500, then one point for every two dollars

CBA Awards

$59 annual fee

20.74% p.a.

one reward point for every dollar spent

Up to 55 days interest-free

St George Starts Low,

Stays Low

$69 annual fee

12.99% p.a. on purchases

Up to 55 days interest-free

© 2008 The Sunday Age

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