Banks have been quick to introduce hardship measures, but be wary of this move.
Banks have been widely applauded for the hardship measures they have introduced during the COVID-19 shutdown – even while retirees are rueing the loss of dividend income – but some measures may not be helpful.
NAB has cut minimum repayments on its credit cards, announcing: “We understand that it’s a challenging time for many customers. That’s why we’re reducing credit card minimum monthly repayments to 0.5 per cent of your closing balance or $5 (whichever is greater).”
The reduction took effect on 27 April and will remain in place until at least 24 July.
The move appears generous, but the hitch is that customers with a minimum direct debit in place would see that automatically adjusted – whether they wanted that or not.
Of course, if payments are reduced and the debt not cleared each month, then the high interest rates attached to credit cards – described by consumer advocate CHOICE as “extortionary” – come into play.
Business Insider reports that rates at Commonwealth Bank and ANZ are up to 20.24 per cent per annum, at Westpac up to 20.49 per cent interest and at NAB 19.99 per cent.
The average Australian balance accruing interest is around $2000, Business Insider says. Under NAB’s rules, customers using direct debit to make minimum repayments are being automatically debited $10 a month – whether they asked to or not.
Over six months, $60 would have been paid off but about $150 of debt would have been accrued – without a single purchase being made.
Consumer Action Law Centre (CALC) policy director Katherine Temple said that if banks were serious about helping people in financial hardship, they should be putting credit card repayments and interest on hold.
“Measures like this simply kick the can down the road,” she said. “Unless banks proactively deal with the accumulation of debt during this crisis, we are going to see a second wave of hardship.”
A NAB spokesperson said: “We recommend customers reduce their debts as much as they can and encourage customers to pay more than the minimum repayments where possible. But these measures recognise there are many people who are facing challenges and still need access to credit.”
CHOICE is lobbying the banking industry to:
- pause debts for six months for people in financial hardship
- cap credit card interest at 10 per cent
- waive long-term credit card debt
- pay royal commission remediation as soon as possible
- recommit to the royal commission reforms.
CHOICE CEO Alan Kirkland said: “The banks should pause all debts for people in hardship.
“That includes personal loans and credit cards – not just mortgages. We also need to ensure that people in hardship don’t end up with larger debts, which is why all interest, fees and charges should also be paused.”
CHOICE reported in 2018 that Australians were waiting an average of five years to collect money owed due to wrongdoing by a bank.
A credit card satisfaction survey released this week by data analytics and consumer intelligence company J.D. Power found that many Australians had the wrong credit card for their spending habits. A high percentage of cardholders (62 per cent) were paying an annual fee, yet only 34 per cent said the value they received from their card outweighed the annual fee paid, the survey found.
Cardholders with higher annual fees were less satisfied and redeemed rewards less often than lower-fee customers and were failing to take advantage of their superior card benefits.
“People are relying on their credit cards to help cash flow, which makes it even more important that they are suitably matched to the right cards,” said Bronwyn Gill, head of banking and payments intelligence at J.D. Power Australia.
“While a strong mismatch was occurring before the pandemic, the change in spending habits is heightening this disconnect, affecting reward accumulation and perceived value. Cardholders are evaluating the existing cards they hold, and issuers need to ensure they are creating value for their customers to weather this storm.”
Bendigo Bank ranked highest in customer satisfaction among credit card issuers in Australia, according to the survey, with an overall score of 772 (out of 1000). American Express (743) ranked second and St George (733) third. The industry average was 719, a one-point increase from 2019.
The Australia Credit Card Satisfaction Study is in its sixth year and measures overall satisfaction in six key areas: interaction, credit card terms, communications, rewards, benefits and services, and key moments. The study covers 20 leading credit card issuers and is based on responses from 4808 credit cardholders.
Do you know what interest rate is attached to your credit card? Are you careful to pay it off each month? Should banks reduce this interest rate given the official cash rate is 0.25 per cent?
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