‘Plastic trickery’ a bank ploy
THE consumer watchdog suspects banks are using “behavioural economics” to trick customers into taking higherrate credit cards.
The Australian Securities and Investments Commission (ASIC) also says reforms such as minimum repayment warnings can leave consumers repaying less and that credit laws may need to be changed.
ASIC’s concerns were raised in a submission to a Senate inquiry into credit card interest rates.
The price of using plastic has risen over four years, de- spite the official cash rate falling 2.75 percentage points.
ASIC said policymakers needed to understand behavioural economics, which reveals how “biases drive particular segments of consumers to make sub-optimal financial decisions about which credit cards are most appropri- ate”. These include making choices that “our future selves would prefer not to have made”.
Moving to a more expensive card in return for, say, 10,000 frequent flyer points is one example.
Another bias is “imperfect self-control” – the plan to repay credit card balances in full and on time, but succumbing to temptation and ending up with unmanageable debt.
Consumers may also pick a card based on “more immediate benefits, such as balance transfer periods or rewards points”.
practices “raise the question of how lenders structure and promote their products in the context of these behavioural biases”.
It notes bank marketing tends to emphasise credit cards as “payment systems” rather than a form of borrowing, and that issuers compete on features not price.