Fees give windfall to banks
BANKS are now reaping more than $1 billion a year from zero per cent balance-transfer credit-card deals that are often worse for consumers.
Ahead of a Senate inquiry into credit cards, an investigation by The Courier-Mail found that since 2011, there has been a tenfold increase in the number of products with an initial grace on existing debts brought over from another card.
The investigation also revealed: • Debt that isn’t cleared can end up being slugged a super-high “cash advance” interest rate, not the standard rate for new purchases. • Those cards which boast longer periods of no interest can end up costing more because of hefty fees. • Banks have killed off all low-rate “lifetime balance transfer” deals, which were actually better for consumers in many cases. • Experts say heavy promotion of balance transfer is being used to hoodwink consumers by diverting attention from an unjustifiable incr crease in the average credit card interes est rate. “Rather than compete on price, banks are pulling the wool over p pc consumers’ eyes, luring people in with sweetheart deals, transfer rates and flash sounding slogans,” said Choice campaign manager Erin Turner. In new analysis, Choice and comparison service Mozo found that despite a 2.75 percentage point plunge in the official Reserve Bank interest rate since February 2011, the major banks’ “low-interest” cards are still charging the same interest rate, if not more.
Separate research by Mozo shows “honeymoon marketing” is creating a “double whammy of danger”.
“Cardholders are tempted to spend more on their card than they normally would, and with no interest to pay for six months or more, they’re not learning the discipline of paying off purchases each month,” said Mozo director Kirsty Lamont.
Further research for The Courier-Mail from another leading financial product comparison service, Canstar, reveals two-year balance transfer offers can end up costing a cardholder more than shorter ones due to typically high annual fees.
“A cheaper choice would be to take a 12-month interest-free deal with no annual fee and just wear the interest rate that applies after 12 months,” Canstar’s Justine Davies said.
Even choosing a standard low-rate card with low annual fee could leave a consumer better off, she said.
Ibisworld says balance-transfer offers have grown to account for 12.5 per cent of the credit card market, generating revenue of $1.34 billion. BUSINESS P42