Treasury documents expose increasing greed on credit cards Banks outed on gouging
THE full extent of the rort banks are now perpetrating through 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: Interest- rate “spreads earned by card issuers” have widened by close to a third since the Global Financial Crisis, from 6.7 per cent to 8.7 per cent;
In a three- way comparison with New Zealand and the UK, only in Australia are spreads expanding;
The “return on equity” reaped from plastic is twothirds greater than on mortgages;
Credit- card indebtedness has deepened for rich and poor – as well as most of those in between – with middle- income households least likely to avoid interest charges; and
Until four years ago, creditcard interest rates moved in line with the RBA’s official rate, despite banks claiming there is 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 seized on the evidence of the close historic link between credit- card and RBA changes, saying: “It punctures the banks’ PR campaign. They’ve made us feel silly for thinking there ought to be a relationship. There is. Credit cards are not magically different.”
Banks had turned to rorting credit cards to make up for lower profits on mortgages, Mr Levey said.
Consumer Action Law Centre CEO Gerard Brody was disturbed by the finding of deepening indebtedness. He said responsible lending laws had to be reformed.