RBA probed over interest rates

While credit card cash rates are at an historic low, interest rates remain at a record high.

While credit card cash rates are at an historic low, interest rates on these cards remain at a record high, leaving finance experts questioning whether Australia's big four banks, are “gouging” consumers.

The Reserve Bank of Australia (RBA) is under pressure to explain the issue. Senior officials of the RBA were subjected to a Senate estimates committee in Canberra yesterday afternoon, amid concerns the four big banks, who control half of the credit card market, are pocketing the rate cuts for themselves.

The cash rate for credit cards is currently sitting at a record low of 2 per cent. However, credit card rates have remained steady and high, prompting questions over where the excess rates are going – and who is benefitting. 

Business Editor for the ABC, Peter Ryan says credit card cash rates have fallen 2.75 per cent since late 2011, but the “spread between cash rate and credit cards is at the widest point since 1990” when the records first began.

The Australian Bankers’ Association, which represents the four big banks, denies that consumers are being overcharged, stating that “The Reserve Bank of Australia cash rate has marginal impact on credit card interest rates” and “Credit card interest rates vary considerably and will be determined by factors such as the risks of unsecured lending and the various features a card has”.

Credit cards represent a very profitable part of Australian banking. Ahead of the committee, Labor Senator Sam Dastyari stated that there was nothing wrong with people making a profit but “We have to make sure that this is a proper, competitive environment and that Australian consumers are not being ripped off”.

During yesterday’s Senate estimates committee, Senator Dastyari was concerned that high credit card interest rates mean many bank customers are becoming trapped in debt and unable to escape.

Following an internal review of the margin by the Treasury a number of months ago, Treasury secretary John Fraser told the committee “My personal view is that it is an issue well worth further, deep investigation and consideration”, as the gap seemed to be widening.

RBA assistant governor Malcolm Edey admitted the “margin does look big” but “We don't really have a good answer” as to why. “If people are interested in knowing why that is, we are happy to have a looked at it and find out more about that”, he said.

Read more at ABC.

Read more at the Sydney Morning Herald.

Opinion: Competition is key

For many Australians, credit cards are essential to help to cover costs when their income cannot. Australians rely on their credit cards to help them get by in one of the highest cost-of-living countries in the world. However, with the ludicrously high credit card interest rates we are experiencing, they’re really a double-edged sword, helping out in the short-term only to cut more deeply when repayments are due.

Consumer advocacy group CHOICE conducted a Consumer Pulse survey in March and found that 1 in 5 people in Australia were living off a credit card to cover the gap until pay day.

The defence of the Australian Bankers’ Association that interest rates will vary considerably and be determined by the extenuating circumstances of the card holder sounds a little like telling consumers: you’ve chosen to have a credit card, so you’re on your own.

With some credit cards charging around 20 per cent interest, the issue is now out of control, and the need for greater competition is obvious. CHOICE is encouraging consumers to stop using credit card products offered by the big four banks and look around for a better interest rate through credit unions and smaller lenders.

CHOICE spokesperson Tom Godfrey says, “The big banks are punishing their credit card customers with crippling rates of interest and with official rates at record lows we deserve to know why the banks are failing to pass on savings.”

Read more information on how to choose the right credit card.

To compare and switch to better credit cards visit Better Banking.


    To make a comment, please register or login
    2nd Jun 2015
    We're lucky to have some competition. See below:
    BSP has reduced its Personal Loan interest rate from 36% fixed rate down to 31% , a decrease by 5%.

    The reduced interest rates provides a competitive and affordable loan product that benefits more BSP customers.

    The new interest rate will be effective on May 15th and all approved Personal Loan after this date will, be repaid at a 31% interest rate.

    The new rate will be calculated on the daily balance, charged monthly and fixed for the term of the loan.

    BSP Personal Loan provides and avenue Papua New Guineans to obtain affordable finance to meet immediate personal needs; like medical bills, travel or planned events like weddings and holiday expenses.
    2nd Jun 2015
    31%? Holy Moly.
    Chris B T
    2nd Jun 2015
    We are talking about Credit Card Interest Rates! Right not Pay Day Lenders/Sharks.
    I thought 17% was way to much for credit cards.
    I use a credit card that has 55days interest free costs $24 annually. Then 19% if not paid out.
    For emergencies only.
    Polly Esther
    2nd Jun 2015
    If something threatens to bite me I try very hard to keep my distance.
    Which is why, a credit card I do not possess, and never have and never will.
    I get along fine without one.
    But to each their own, live and let live, to the good people who have them, enjoy.
    2nd Jun 2015
    Nothing wrong with Credit Cards as long as you locate/negotiate a ZERO annual fee and pay the due (full spending over the period) amount on or before the Due Date.
    For once, just USE THEIR MONEY to your advantage!
    2nd Jun 2015
    How pathetic! The banks have been ripping us off with interest rates well and truly beyond belief for decades !!! Competition? What competition? The big 4 etc are all in the game together, making billions of profit every year!
    The RBA to explain? What a laugh. Regulation is needed to stop this - not more talk shows.
    2nd Jun 2015
    Collusion you suggest?
    But that's illegal !!! And no Aust Govt would allow such blatant abuse would they???
    2nd Jun 2015
    Bank of South Pacific
    Try that in a search engine.
    2nd Jun 2015
    DC this is a 'rip off' easily avoided completely with proper budgeting to pay off the debt each month. Do that and it makes no difference what the interest rate on credit cards is, you won't be paying it.
    2nd Jun 2015
    I have NEVER had a credit card. Perhaps I am fortunate that a debit card is all I need. I know that most young people (and some older ones who should know better) have to have the biggest, the best, the latest whatever. And it has to be NOW. How about just saving for it? I remember my mum putting expensive items on layby. Is that still around? This consumer society we live in is out of control.
    2nd Jun 2015
    I hope Paulodapotter is listening! If you can't afford to pay off your credit card every month, you can't afford a credit card! Simple. Then it does not matter what the interest rate is because you won't be paying it. It is the card holder's responsibility to make sure they can pay back the money they are borrowing each month. We can all complain about the high rates but with a credit card comes responsibility. And it is the card holder's responsibility to live within their means. Patriot is right!
    2nd Jun 2015
    Pay the bill in full each month. No problem however high the interest rates are.
    2nd Jun 2015
    My credit card has $26 annual fee, I pay the full amount each month, direct debit no matter what the amount is. Credit cards are good for online shopping. I have a healthy debit card balance use that most of the time.
    2nd Jun 2015
    Banks can charge whatever interest rate they can get away with before people start burying their hard earned in the back yard. If they could charge 40% on credit cards, they would. They couldn't give two hoots about an investigation into interest rates. Banks rule!
    2nd Jun 2015
    We must have the greediest financial institutions in the world! A pox on them all!
    2nd Jun 2015
    Pay your bill on time and they get nothing. Best revenge!
    Not Senile Yet!
    3rd Jun 2015
    A majority would state.....if you have one and don't pay it within the Month of credit.....well it's your own silly fault!!!!
    But that is not the point at all!!!!
    When interest was between 7 to 10% or higher....the credit card rate was the same.....around 19 to 21%!!!
    Now that it is down to 2.5% ......surely there is room for the Banks to Lower the Rate appropriately???
    The fact that the Government enabled the Banks to receive all our Pays through electronic banking without any limitations on charging fees for accounts summarises it all.....total monopoly of all money...by it going in and out of accounts electronically.....should have been only granted if the Banks agreed to abolish Fees!!!
    As for the Credit Card......Internet transactions are safer with a credit card....being they can be covered against fraud.....whereas Debit card users are not covered at all!!!
    Given this increasing trend....the government (who supposedly regulates our banks)....should attack them on both issues.....1. the overcharging on interest rates given the RB lowering of Interest and 2. Challenge their right to charge a fee for a Credit Card Account!
    Whilst everyone can shop around.....there is a definite collusion between the Big 4 in this area that has never been addressed by the Regulator.......namely the Government!!!

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