Credit crunch on big banks
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.