Need to know
- Australians are being unfairly charged high interest rates on frequent flyer credit cards that are currently essentially worthless
- CHOICE is calling on banks to reduce interest rates on all credit cards to 10% to ease COVID-related financial pressure
- Sign up to add your support to our campaign for fairer banking
When Virgin Australia entered voluntary administration on 21 April, the future of the airline's joint Velocity Frequent Flyer program, which has 9.8 million members, was thrown into doubt. All redemptions were temporarily frozen and, although you can now redeem points on travel to a limited amount of destinations from 1 September 2020, the value of the points customers have accumulated mostly remains uncertain.
NAB, Westpac, American Express and Virgin Money (Bank of Queensland) offer Velocity frequent flyer credit cards, with all the touted bells and whistles, and charge interest rates of around 20% per annum for purchases.
New applications for these cards have been halted, but existing cardholders are still paying eye-wateringly high interest rates for little or no value.
It's indefensible that banks continue to charge people interest rates in excess of 20%...when the value of the points is in limboCHOICE consumer banking advocate Patrick Veyvret
"While the value of the Virgin program is in jeopardy, the interest rates on these credit cards must be capped at 10%," says CHOICE consumer banking advocate Patrick Veyvret.
"The banks' response to customers affected by COVID-19 has been commendable to date, however more work needs to be done to make credit cards fairer, especially frequent flyer cards," says Veyret.
"Virgin Australia remains in voluntary administration and its Velocity program essentially frozen. Velocity members are still in the dark about whether they will be able to redeem points to spend on many of the advertised rewards, such as the Virgin Rewards Store. What's more, Virgin has remained silent on whether people's points will be devalued as a result of the voluntary administration," he says.
"It's simply indefensible that banks continue to charge people interest rates in excess of 20% on Velocity frequent flyer cards when the value of the points is in limbo."
How much value do you get from frequent flyer programs?
"Banks market their rewards programs to lure people into purchasing expensive credit cards, often using the trap of 0% balance transfers," says Veyret.
"Banks justify their exorbitant interest rates and fees by pointing to perks like access to frequent flyer programs. However, a recent CHOICE investigation found that many frequent flyer credit cards are simply not worth it. This is even more so now with the future of the Virgin Velocity program under question," he says.
CHOICE travel expert Jodi Bird says: "We always advise at CHOICE not to place too much value on frequent flyer programs.
"Generally we have found that you don't get great value out of redeeming these points for products or gift cards. The best value tends to be for domestic seats," he says.
"But overall, you're better off shopping for a bargain, whether it be airlines or just in the supermarket, rather than shopping around to try to accumulate frequent flyer points."
Join our campaign for fairer banking
Thousands of people have joined forces to call on the banks to urgently implement five crucial measures to help out anyone doing it tough throughout the COVID-19 crisis. This includes capping interest rates on all credit cards to 10%.
"Velocity frequent flyer credit cards are simply the tip of the iceberg," says Veyret. "The cash rate is at an historic low of 0.25%. There is no justification for the big banks to continue charging interest rates in excess of 20%. Interest rates on all credit cards must be capped at 10%."