Big four banks in profits gouge

The big four banks are finding other ways to gouge customers

Big four banks in profits gouge

Having recently announced soaring profits, the big four banks found themselves with little choice but to pass on the full Reserve Bank of Australia (RBA) rate cut, however, they are finding other ways to gouge customers.

With the official cash rate now the lowest since the RBA began setting monetary policy, at 2.75 per cent, it would seem that borrowers are laughing all the way to the bank, but this isn’t the case for those saddled with expensive credit card debt. Despite all interest rates being theoretically linked to the Reserve Bank’s cash rate, banks have been slow, indeed downright reluctant, to pass on any of this reduction to their credit card customers.

Credit card interest amounts to $6.2 billion in revenue annually for the big four and despite a reduction in the official interest rate of two percentage points since November 2011, customers have only seen, on average, 0.12 points of a reduction in credit card interest rates.

It is estimated by the Australian Securities and Investments Commission (ASIC) that, if only the minimum payment is made each month, a credit card balance of $4700 will attract $807 in interest per annum.

Matt Levey, from consumer watchdog Choice said, “It's basically just [banks] taking advantage of a product that's poorly understood. While there's an extensive media spotlight on home loans, it seldom extends to credit cards.''  This was countered by chief executive of the Australian Bankers Association, Steven Munchenberg who stated that, “It works both ways. Customers get the benefit when the cash rate is going up, they don't see that in their interest, and when the cash rate is coming down they don't see that either.''

Read more at TheAge.com.au

Opinion: And the gouge continues

Shareholders of the big four banks must find it difficult to wipe the smiles off their faces, but for bank customers it’s not so funny.

Last week mortgage holders recieved some pre-budget relief with the RBA dropping the official cash rate by 25 basis points, and for once, the big four banks were falling over themselves to announce they would pass on the full rate cut. Big deal. While their customers struggle with mortgage repayments, juggle credit card debt and watch their savings dwindle to nothing, the extreme half-year profits each bank has announced over the last two weeks are simply a proverbial smack in the face.

Bitten by the GFC in 2008, Australians have taken a more conservative view on borrowing money and have spent less and saved more. Such savings include paying off expensive debt and spending less on credit. To maintain their profit margin, the banks have countered this by keeping interest rates on credit cards higher than the cost of actually providing the credit. Not great news for those who are, unfortunately, not in a position to live without the safety net of credit card spending.

Savers have also been hit hard. As those who are living on a fixed income will understand only too well, the news that the RBA has cut interest rates further cuts like a knife, with the knowledge that the already meager income derived from savings will fall, while the cost of living continues to rise. Although most banks offer an initial promotional interest rate, the everyday ongoing interest paid on savings is approximately three per cent, just .25 per cent above the official cash rate. With bank home loan interest rates about two percentage points higher than the official cash rate, there’s plenty of scope for them to manoeuvre and spread the ‘joy’, should they wish to do so.

A further blow is the deeming rate on savings for those who are on an Age Pension from Centrelink. Although the government has recently lowered the deeming rate, it still does not adequately reflect the position of savers, and any further reductions are slow to flow through.

It seems that the old saying ‘never a borrower nor a lender be’ should be revised to ‘never a borrower from the big four banks be’.

Should the banks be more accountable for interest rate moves? Or should the government look to make deeming rates more flexible?





    COMMENTS

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    Tom Tank
    13th May 2013
    11:06am
    The privatisation of the Commonwealth Bank, formerly the "People's Bank", opened the door to the current rapacious behaviour of the banking industry as a whole. As long as the Commonwealth Bank was subject to Government control this acted as a brake on the other banks. The ALP should be ashamed of themselves for being responsible for this privatisation.
    Which ever Party in in power should exert some measure of control on Banks to prevent this outrageous behaviour. The old cry of "The market will sort things out" is rubbish because self interest will always prevail and the notion that large profits feed down through the system is also a Furphy.
    I do not believe in Nationalisation but given the current circumstances, which will NOT change without serious pressure being applied, we need another "People's Bank" which will exert that sort of pressure.
    Tom
    13th May 2013
    2:35pm
    At the time, I actually agreed the CBA privatisation as CBA's attitudes belonged to the Charles Dickens era. However, I now I think it is now time for a new no-frills "peoples' bank" for the minnows who don't want to swim with the sharks.
    Nanna Duck
    13th May 2013
    11:16am
    My husband wrote to the then treasurer a few years ago outlining the position for a new "People's Bank" to be established. He received a polite reply declining the proposition. We are left lamenting. The market can only sort things out if there is a viable alternative and people have a real choice.
    Pat Ricia
    13th May 2013
    11:34am
    Is there any reason why the deeming rate can't be permanently tied to the official RBA Cash Rate and would you be prepared to lobby for such an outcome?
    seth
    13th May 2013
    11:52am
    The banks, manufacture nothing, use peoples money and charges like a mad bull,
    An excess profit tax should apply over a reasonable profit. what is happening now is barefaced rip offs.
    What good is the Reserve bank if their monetary decisions are ignored by banks.
    Helen-gran
    13th May 2013
    1:16pm
    Oh please - enough of this credit card interest is too high! A credit card is a form of unsecured loan, so of course the interest rates are higher. It would be clearer if, when complaining about "credit card interest charges", people were reminded that the amount the user borrows on a credit card is an unsecured loan. Interest rates on home mortgages are much lower because the home is the security for the loan. This is normal business principles practice. And why wouldn't shareholders of the banks also be customers? If you believe that you've invested in something safe & worthwhile, you would also use its services.
    Pass the Ductape
    14th May 2013
    8:21am
    So true Helen-gran. And if anyone has really had a gutful of the interest rate charged on a credit cards, the answer is so simple - use it to your advantage or don't use one at all!
    Trish
    13th May 2013
    1:31pm
    Why oh why do people not realise that if they pay off their credit card loan on or before the stated date, they will not pay any interest. I use my credit card as much as possible, and have only twice got caught out having to pay the interest, just because I forgot to pay up on time.

    Would add that, as a self-funded retiree, my savings are earning less than ever, due to the drop in interest rates.

    Can't win!!
    Paulo
    13th May 2013
    1:56pm
    The Big Four Banks recent half year profits would be more than enough to cover all of the forecast deficit for this years budget, but has this been discussed by any financial commentator? Commentators whinge about the Mining tax but why not a super profit tax on the Gougers
    Tom
    13th May 2013
    2:25pm
    Why not, indeed. We can call it "Envy Tax". Better still, we could let the banks run our pitifully moribund government?
    Tom
    13th May 2013
    2:21pm
    "Debbie explains how the big four banks are gouging customers and she is not amused." What an imperious position to adopt on the matter. There is no advice on what seniors might do to avoid or minimise the charges. Just mischievous umbrage.
    B5YCK
    13th May 2013
    2:50pm
    Gouging:
    Coles; Woolworth with added income from poker machines, and Clubs with their machines too.
    What's new?
    Anyone who invests money in banks want a return for the price of their shares.
    Boof
    13th May 2013
    3:01pm
    Has anyone heard of Credit Unions. I had a bank loan back in the late 80's. For$150,000.00 mortgage on a house. over 20 years. I went too see the loans officer at a credit union. She worked it out for us, paid out the bank (With fees) and saved $80,000.00, for us, over the 20 year period of the loan, from one of he big fours. (Which Bank.) We paid it off early with no FEES attached.
    unicorn
    13th May 2013
    3:25pm
    You were lucky Boof as our local credit union is the worst of the lot charging us $2.50 every time our pension is put in the bank & a further charge lately similar in amount but what it is for is anybody's guess.
    Pass the Ductape
    14th May 2013
    8:24am
    Possibly for a withdrawal. You need to change Credit Unions!
    BrianP
    13th May 2013
    3:25pm
    To see how profit conscious and corrupt the big banks have become, go to http://www.bfcsa.com.au/
    Grey Voter
    13th May 2013
    4:34pm
    What else is new?

    Nobody has mentioned that if our banks were weak, Australia will be on its way to become another Cyprus, Greece, Portugal or Spain.

    You do not need a million dollars to buy some bank shares and start reaping the benefits.
    Banks have a large area dealing with credit card defaults. God knows how many customers default on their credit cards and cause the necessity for high interest rates to recoup the losses.

    It is similar to the likes of Coles and Woollies loading their prices to cover shop-lifting.

    I find it far more obscene that our grocery giants offer so much so-called discounts only to hit the most needy through their huge investments in petrol retail and now.....poker machines.

    At least the banks are the strong pillars our economy needs but our grocery giants unashamedly gouge the needy and then hypocritically pose as our friendly grocer.
    Helen-gran
    14th May 2013
    5:24pm
    Well said, Grey Voter.
    Jurassicgeek
    13th May 2013
    4:37pm
    They are banks! That's what banks do! They gouge,rip off and grab anything they can! All for the shareholders and the "snouts in the trough" brigade. They are not interested in the customers without whom, I might add, they would not have any shareholders! i noticed they passed on the full amount this time but I suspect the Queen bee of Westpac would not be happy abput that......
    Helen-gran
    14th May 2013
    5:27pm
    But without people investing in banks (deposit accounts & shareholders, etc.) there would be no money for loans to their "customers"! Same principle with Credit Unions - they need investment money to be able to lend to their customers.
    Young Simmo
    13th May 2013
    4:45pm
    Back in the late 1960s or 70s when Credit Cards first became fashionable we had a Bank Card. After a couple of years and in deep shite, we had to work hard to get the dam thing paid off, and quickly scrubbed it. 30 or 40 years later when we first went onto the Internet in 1999 we decided we needed a credit card to pay for stuff on the internet. We got a $500 limit Visor Card and now 13 years later it is a breeze. we use the card for everything over $10, pay it off every pension day and have paid no interest in 13 years. The only cost is the annual fee of about $50 or $60 and we get all the freebies from the awards. A Visor card is a marvellous advantage if properly managed. The only drag is on the rare occasions I front up at the bank counter, they always ask, "do you want to increase your limit?". For 13 years I have said "no thankyou" easy really. On special occasions I can top it up with 2 or 3 grand to buy special items.
    Grey Voter
    13th May 2013
    5:36pm
    Good onya Young Simmo.

    Most financial products can potentially be hazardous unless we manage them properly. Looks like you are well in control.
    WebGypsy
    13th May 2013
    8:37pm
    Boof - You and I are the wise ones - we ditched banks and switched to customer-owned Credit Unions - we are all small shareholders. The Board is elected by us - no rapacious charges - no "golden handshakes" - profits re-invested in providing wonderful services for its very satisfied customer/shareholders AND for investing in habitat for endangered Oz species. My credit union morphed into becoming a legal bank BUT it is still owned by us - its customers. I'm a pensioner. I've been a satisfied customer for 25 yrs. Friends ditched banks when I told them the services my Credit Union/ bank offers.
    WebGypsy
    13th May 2013
    8:37pm
    Boof - You and I are the wise ones - we ditched banks and switched to customer-owned Credit Unions - we are all small shareholders. The Board is elected by us - no rapacious charges - no "golden handshakes" - profits re-invested in providing wonderful services for its very satisfied customer/shareholders AND for investing in habitat for endangered Oz species. My credit union morphed into becoming a legal bank BUT it is still owned by us - its customers. I'm a pensioner. I've been a satisfied customer for 25 yrs. Friends ditched banks when I told them the services my Credit Union/ bank offers.
    taylah
    14th May 2013
    12:23am
    Deb the one thing you forget to mention, as did wayne swan with his class warfare arguments re the big 4, there would not be an Australian worker that does not own shares in these institutions - think superanuation they would be one of the few shares keeping our super just over the blue line. Think before you write
    brocky
    14th May 2013
    11:05am
    All too often we hear from pensioners who claim to be struggling on the pension they receive.
    I am on the aged pension and after my 'bills' have been paid I still am able to save money.
    I have enough money left to buy groceries, put fuel in my car and enjoy life.
    Perhaps because I don't smoke ( never have) don't drink ( never have) can contribute to why I still live in comfort in my housing commission home.
    And surely there are other people who receive the aged pension are like me.
    It would be good to hear some comments from those people.
    Pat Ricia
    14th May 2013
    3:13pm
    I'm still interested in whether the Deeming Rate can be tied to the RBA Cash Rate and eliminate all the adjustments required.
    Miss. Dellie
    15th May 2013
    7:23am
    I agree with Pat Ricia, why can't we have the Deeming rate tied to the RBA Cash rate. This seems like such a simple process. maybe we should start a petition??????


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