Credit crunch on big banks

The Sunday Telegraph (Sydney) - - NEWS - SA­MAN­THA MAIDEN NA­TIONAL PO­LIT­I­CAL ED­I­TOR

BANKS will be hauled be­fore a Se­nate in­quiry to in­ves­ti­gate claims that $2 bil­lion a year in in­ter­est rate cuts are not be­ing passed on to con­sumers.

With ex­perts warn­ing coun­sel­lors are reg­u­larly help­ing credit card users with debts of $50,000, banks stand ac­cused of fail­ing to pass on in­ter­est rate cuts and mak­ing it too dif­fi­cult to switch au­to­matic de­duc­tions to new, cheaper credit card prod­ucts.

Aus­tralia’s $50 bil­lion-ayear credit card spend­ing spree and the huge gap be­tween the of­fi­cial cash rate and credit card in­ter­est rates will be in­ves­ti­gated by the Se­nate un­der a deal to be an­nounced this week.

La­bor leader Bill Shorten has struck a deal with cross­bench sen­a­tors to force a Sen- ate in­quiry, urg­ing the prime min­is­ter to back him.

La­bor has the num­bers to force ac­tion with or with­out the Coali­tion’s sup­port.

“It’s time we got to the bot­tom of this. It’s up to the prime min­is­ter if he wants to work with me or if he wants to keep his head in the sand,’’ Mr Shorten said. “It’s galling that banks are happy to jack up rates when they’re go­ing up but aren’t so keen to drop when they’re go­ing down.’’

Loy­alty pro­grams that some ex­perts be­lieve lure cus­tomers into us­ing cards with high in­ter­est rates will also be in­ves­ti­gated.

Credit card in­ter­est rates range from as low as 5 per cent to 21pc. How­ever, the ma­jor­ity of credit cards — 52 per cent — have an in­ter­est rate of 19 per cent or more.

While home­own­ers en­joy some of the low­est stan­dard vari­able rates since the 1960s, the ben­e­fits have not flowed on to credit cards. Credit card in­ter­est rates are run­ning at up to 10 times the Re­serve Bank’s of­fi­cial cash rate.

The big banks have sim­ply ig­nored pleas from Trea­surer Joe Hockey to pass on rate cuts to credit card­hold­ers.

Mr Shorten has writ­ten to the prime min­is­ter warn­ing it would be “a mis­take’’ to ig­nore the ev­i­dence of the gov­ern­ment’s most emi­nent eco­nomic ad­vis­ers that fur­ther in­ves­ti­ga­tion is re­quired.

The terms of ref­er­ence of the in­quiry will in­clude the credit card loy­alty pro­grams, trans­ac­tion costs, min­i­mum monthly pay­ment lev­els and how con­sumer choice can be im­proved. The Con­sumer Ac­tion Law Cen­tre’s Ger­ard Brody said fi­nan­cial coun­sel­lors reg­u­larly helped fam­i­lies with credit card debts of up to $50,000.

“Peo­ple can feel very stuck on their cards, they have a lot of debt on it or there are a lot of au­to­matic de­duc­tions and the has­sle of chang­ing can feel over­whelm­ing.’’

But the Aus­tralian Bank­ing As­so­ci­a­tion’s Tony Pearson said con­sumers had a choice and there was strong ev­i­dence that cus­tomers were “savvy’’ in their use of cards.

“The credit card mar­ket is very com­pet­i­tive. What’s im­por­tant is that con­sumers pick credit card for their fi­nan­cial needs,’’ Mr Pearson said.

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