9 May 2016
Consumer group CHOICE has welcomed the Federal Government's credit card reforms that will require banks to prominently display interest rates and fees and allow consumers to cancel cards without having to visit a branch.
The reforms, which were outlined on Friday in the Federal Government's response to last year's bipartisan Senate Inquiry into credit cards, will place new obligations on credit card providers, and stand to benefit consumers.
"For too long, banks have had it all their own way when it comes to credit cards, often hiding the true costs of cards behind flashy marketing and short-term offers," says CHOICE Campaigns Manager Erin Turner.
"Australians have been confused by '0% interest balance transfer' offers that revert to toxic interest rates at the end. To make matters worse, they then make consumers jump through unnecessary hoops just to cancel a card.
"Consumers have been slugged with staggeringly high credit card interest rates while lacking meaningful information to assess the true costs of these products.
"This is reflected in the fact that around four in five people still have a credit card with a major bank despite these institutions having higher average fees and interest rates.
"The Federal Government's reforms will be most welcome for those consumers who have been forced to go into a branch to cancel a card, struggled to determine their card's interest rate or been surprised by an annual fee," Ms Turner says.
CHOICE has been campaigning for many years to make banking fairer for consumers and proposed a number of credit card reforms that were championed by the Senate Economics Committee. These include:
- Ensuring consumers can cancel their credit card or reduce credit limits online, rather than being forced into sales conversations in bank branches or over the phone;
- Notifying consumers when balance transfer periods or introductory offers are about to end;
- Requiring that credit card advertising, marketing materials and monthly statements prominently display interest rates and fees;
- Giving consumers information about the annual costs of their card use;
- Tightening responsible lending obligations to make sure credit cards don't turn into debt traps; and
- Providing contact and support for customers who are struggling with high credit card debt.
"We hope these reforms will eventually mean fewer consumers are stuck in high-interest, poor-value credit cards," Ms Turner says.
"Treasury are now consulting on the best ways to give consumers better information about credit cards and how to crack down on unfair practices.
"As a result of these changes CHOICE expects to see the big banks finally start competing on the real costs of credit cards: interest rates and fees."
Key credit card facts
Last year, CHOICE's investigation into credit card interest rates and consumer use of cards found that:
- The failure of card providers to move interest rates in line with cash rates costs consumers has cost Australian credit card holders $2.07 billion in additional and unnecessary interest payments since mid-2011.
- 64% of consumers don't know their credit card interest rate.
- 59% of consumers want more information about how much they will pay in interest rates and fees when choosing a credit card.
- No big bank will let a customer cancel a credit card online, despite letting customers apply for cards and lift credit limits online.
- Most credit card providers aren't competing on the key costs of credit cards - interest rates and fees - and don't respond to changes in the cash rate. Only 16% of providers made any change to card interest rates in the month after a change to the cash rate.
See CHOICE, 2015, Submission to the Senate Economics Committee: Matters Related to Credit Card Interest Rates http://www.aph.gov.au/DocumentStore.ashx?id=4179b59b-8fb9-4d7c-b92b-19b1d307db4d&subId=400550