The bank ‘support’ you should avoid

Banks have been quick to introduce hardship measures, but be wary of this move.

Credit card rate rip-off

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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    COMMENTS

    To make a comment, please register or login
    floss
    7th May 2020
    11:17am
    Could you ever trust banks again.
    Realist
    7th May 2020
    11:54am
    The obscene one thousand four hundred million dollar profit announced "by one of the big four" banks - and described as an end to all life on earth..

    "The Banks" are NOT helping anyone but themselves. A six month "Payment Holiday" only results in the accrual of interest, which is then ADDED to the loan at the end of six months, you then pay interest for the remaining term - in some cases (e.g.. Mortgages) for close to thirty years - on the HIGHER balance.

    MONEY, makes banks (and individuals) untouchable.

    Read this if you are in doubt :- https://www.watoday.com.au/national/western-australia/billionaire-kerry-stokes-flies-to-canberra-for-anzac-day-services-after-quarantine-exemption-20200425-p54n5y.html
    Ted Wards
    7th May 2020
    12:09pm
    Its hilarious, I've had many conversations with friends who are saying they are actually paying off their debts because they are not spending or going out. I've found this myself and the savings have nearly doubled.
    Wstaton
    7th May 2020
    12:20pm
    Just shows what you can do if you are a billionaire. You can bet your bottom dollar if someone with no money and with ailments wouldn't be given the courtesy.
    Wstaton
    7th May 2020
    12:46pm
    I got a note from the NAB saying this and I realised straight away that I would end up owing more and having to pay more in the end.
    who does this benefit? Certainly not the user. Certainly, the banks, who are not paying dividends but this way will provide higher dividends in the future as the customers in distress end up with continuing stress when all this is over. What a way to take advantage. Just like the banks.
    Anonymous
    7th May 2020
    1:39pm
    I am sure some of those self funded retirees depending on their bank dividends would certainly not agree with you. So why should the banks help their customers and hurt their shareholders some who are doing worse than their customers? If you have a debt then it is your responsibility to pay it back plus interest.
    Youngagain
    7th May 2020
    1:04pm
    Why anyone allows a credit card debt to accrue is beyond me. Pay the full balance every month and only spend what you can afford to spend and you don't have a problem. If you really need credit, there are far cheaper ways to get it than using a credit card at around 20% interest!!!
    Youngagain
    7th May 2020
    1:04pm
    Why anyone allows a credit card debt to accrue is beyond me. Pay the full balance every month and only spend what you can afford to spend and you don't have a problem. If you really need credit, there are far cheaper ways to get it than using a credit card at around 20% interest!!!
    Hasbeen
    7th May 2020
    1:23pm
    Better still, cut up that credit card into small pieces. If you are one who has trouble controlling the urge to spend, get a debit card, so you can only spend money you actually have, rather than money you hope to get.

    7th May 2020
    1:41pm
    If you have a debt then it is your responsibility to pay it back plus interest. It is great that the banks are helping by accepting smaller payment now but the interest needs to be paid back at a future date. Banks are not charity and should not act like a charity either.
    Tanker
    7th May 2020
    2:10pm
    Scotty had to be dragged screaming before he called the Royal Commission into Banking so why are the government not letting people know what is being done to them? They have plenty of members working from home on full pay who could be doing something about this rort.
    Anonymous
    7th May 2020
    3:20pm
    It is not a rort at all. Banks are helping people by reducing their monthly payments on their credit cards debts. Nothing wrong with that at all.
    Tanker
    7th May 2020
    2:10pm
    Scotty had to be dragged screaming before he called the Royal Commission into Banking so why are the government not letting people know what is being done to them? They have plenty of members working from home on full pay who could be doing something about this rort.
    BillW41
    7th May 2020
    6:19pm
    As a retired banker of a considerable number of years, I'm disgusted by the money-raising tactics of banks today. I avoid their rip-offs by operating three fee-free credit cards, each of which falls due at a different time of the month, using each one between advantageous (to me) dates and paying them off completely on their respective monthly due dates. I have successfully used the banks' funds for years while leaving my cash in interest bearing savings accounts between payments. OK, that last part isn't as helpful as it used to be!
    Priscilla
    8th May 2020
    11:36am
    What is the government doing about this blatant grab for money by the banks?
    SuziJ
    9th May 2020
    9:53am
    Is there any wonder why I won't have a credit card?


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