Banks’ big credit rip-off

Secret Treasury modelling shows huge spike in profits on cards

THE full extent of the rort banks are now perpetrating though plastic can finally be revealed, with secret Federal Treasury modelling showing the profitability of credit cards has spiked by nearly a third since the GFC.

The modelling is contained in briefing documents prepared for Joe Hockey in March and April after the Treasurer asked his department why credit-card rates had not fallen in response to the Reserve Bank of Australia’s four-year campaign of official cuts.

As a Senate inquiry into credit-card interest rates looms — and with many households struggling to repay their share of the $51 billion owed on plastic — News Corp Australia today brings to light the briefing documents, obtained under Freedom of Information laws.

They reveal: CARD issuers’ interest-rate spreads have widened by close to a third since the Global Financial Crisis, from 6.7 per cent to 8.7 per cent. SPREADS are expanding only in Australia, not in New Zealand or Britain. THE “return on equity” reaped from plastic is two-thirds greater than on mortgages. CREDIT- card indebtedness has deepened, with middleincome households least likely to avoid interest charges. UNTIL four years ago, creditcard interest rates moved in line with the RBA’s official rate, despite banks claiming there was no relationship.

The chairman of a Senate committee about to hold an inquiry into credit-card interest rates, Labor’s Sam Dastyari, said the documents showed customers weren’t getting a fair deal.

“People are angry and this new information justifies that anger,” Senator Dastyari said.

“My advice to customers is this: start telling credit card providers enough is enough. Ring them up, email them, visit them and tell them things need to change.”

Consumer group Choice’s head of campaigns Matt Levey said banks had turned to rorting credit cards to make up for lower profits on mortgages.

Consumer Action Law Centre chief executive Gerard Brody said responsible lending laws had to be reformed.

A spokesman for the Treasurer yesterday said card rates were high compared with the RBA rate.

“We have asked the Treasury, working with the Council of Financial Regulators, to examine the issue.”