The Courier-Mail

Rigged sys­tem putting the big squeeze on credit con­sumers


THE leg­endary in­vestor War­ren Buf­fett re­minded his share­hold­ers in 1988 that “if you’ve been play­ing poker for half an hour and you still don’t know who the patsy is, you’re the patsy”.

For the past five years in­ter­est rates on mort­gages have con­tin­ued to fall but con­sumers have not had their voices heard on stub­bornly high credit card in­ter­est rates. In this game of credit card poker we are the pat­sies.

Yesterday, this pa­per out­lined a con­sumer cam­paign to shake up the credit card mar­ket by en­cour­ag­ing con­sumer ac­tion. It de­serves sup­port. For those tak­ing part there is no doubt there are bet­ter deals out there to be achieved.

But con­sumer ac­tion alone can’t ad­dress un­der­ly­ing prob­lems in the credit card mar­ket. Con­sumers need more in­for­ma­tion and bet­ter laws.

Over the past few weeks I have been chair­ing a bi­par­ti­san Se­nate in­quiry ini­ti­ated by Bill Shorten and sup­ported by Lib­eral Sen­a­tor Sean Ed­wards to ex­plore if con­sumers are get­ting a fair deal from credit cards. Sadly, Tony Ab­bott and Joe Hockey don’t agree this is an is­sue we should be talk­ing about. It’s hard to see why be­cause the ev­i­dence is damn­ing.

Credit cards are a cash cow bring­ing in around $8.5 bil­lion of rev­enue for credit

card providers ev­ery year. With 16 mil­lion cards in cir­cu­la­tion, it is also a grow­ing prob­lem. Over the past decade there has been a 50 per cent growth in credit card bal­ances and credit card debt is more than $50 bil­lion.

Spare a thought for the hun­dreds of thou­sands of Aus­tralian’s head­ing into the Christ­mas sea­son with credit card debt still out­stand­ing from last year and lit­tle op­por­tu­nity to ever get on top of it. The sys­tem is rigged against them.

The credit card in­dus­try likes to talk about “low rate cards” and re­fi­nanc­ing op­tions such as 18 month “in­ter­est free bal­ance trans­fers”. Don’t be fooled. While there are lower rate op­tions avail­able, ac­cord­ing to Re­serve Bank data the spread be­tween low rate cards and what it costs to bor­row money (the cash rate) is still at a record high. And “in­ter­est free pe­ri­ods” are a trap. If you fall be­hind and de­fault af­ter 18 months you will likely be charged back­dated in­ter­est on the en­tire 18 month pe­riod. These prod­ucts aren’t be­ing pro­vided be­cause credit card providers have sud­denly had a guilty con­science and want to give some­thing back to the com­mu­nity – they are mar­ket­ing ploys.

What is the an­swer? Bet­ter com­pe­ti­tion and more in­formed con­sumers.

Chang­ing credit card providers should be easy. It isn’t. As David Koch re­cently tes­ti­fied at a Se­nate hear­ing “you are more likely to leave your spouse than you are your bank”.

I heard ev­i­dence that one of our big four banks re­quires you cut your credit cards up di­ag­o­nally (God knows what hap­pens if you cut it up in squares) and send it back to them in an en­ve­lope be­fore they will can­cel your card.

In com­ings weeks, new ideas will be ex­plored and out­lined on how the rules can be re­jigged in favour of con­sumers. Ex­pect the credit card providers to fight this ev­ery step of the way.

In the mean­time, stop play­ing poker un­less you know all the rules – you won’t win. La­bor Sen­a­tor Sam Dast­yari is chair­man of the Se­nate Eco­nom­ics Ref­er­ences Com­mit­tee Join the Big Debt Switch to help un­lock sev­eral deals that could lower the cost of debt for many house­holds by go­ing to moneysaver­hq.couri­ There is no obli­ga­tion to take up any of­fer. News Corp Aus­tralia and One Big Switch will earn a com­mis­sion from any ac­cepted deals. News Corp Aus­tralia is a share­holder of One Big Switch.

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