Credit card 'confusopoly'
CHOICE's submission to a federal government inquiry into credit card costs analysed trends in the credit card market as well as consumer understanding and use of cards. Our research shows that while there's a lot of credit card choice, interest rates are uncompetitive, and responsible lending regulations imposed on card issuers have failed to protect consumers.
CHOICE crunched the numbers across the big four banks and calculated the time it would take to pay off an average credit card debt on low interest cards, paying only the minimum monthly repayment.
Consumers are worst off with Westpac – paying a minimum monthly repayment of 2% or just $10, whichever is greater, you'll be stuck paying off your debt for more than 26 years.
NAB customers will be paying off their debt for 18 years and 7 months, and ANZ and Commonwealth Bank customers will be making repayments for 17 years and 11 months.
Kat Lane from Consumer Action Law told the inquiry she sees many people stuck in credit card debt. Credit card terms can last decades, but Lane wants card providers to assess whether a consumer could pay off the full amount of a credit limit within a reasonable period, say three years.
"Personal loans are for five years, credit cards are for 30. Let's change that. Banks have made a fortune at amounts they shouldn't have got," said Lane.
Because there's no standardised way to calculate minimum monthly repayments, consumers can be caught off guard by banks offering the lowest possible repayments, thus signing up to a greater "debt sentence".
CHOICE CEO Alan Kirkland told the inquiry there needs to be more emphasis on the true "costs" of reward points. Credit card rewards programs continue to expand, exposing consumers to greater risk.
"In order for consumers to enjoy benefits, they have to understand offers," he said.
CHOICE CEO Alan Kirkland and Campaigns Manager Erin Turner presented evidence at a hearing of the Senate Economics References Committee last week as part of an Inquiry into matters relating to credit card interest rates. CHOICE is calling for card providers to give consumers clearer information about costs when they need it most, such as an average cost figure in advertising material and clear information about other interest rates in the market on card statements. The Senate Committee will report on its findings and make recommendations to improve credit card costs later in the year.
(Read how one CHOICE journalist resisted the lure of rewards, to shut down her lingering debt for good).
CHOICE is calling on the banks to compete on costs and be transparent about the real value of 'special offers' and rewards points. Join our Better Credit Campaign and help us show the big banks how they can do better by consumers.