The Federal Budget for 2017-18 was unveiled in Canberra on May 9. Though nothing seismic will shift the industry, the Federal Government has hinted that it will get tough on improper practices in the credit card market with new, tougher regulations.
According to reports in the media, Australians have been “ripped off” to the tune of $3.49 billion since 2011. This is largely due to credit card companies refusing to pass on Reserve Bank of Australia (RBA) Cash Rate cuts to credit card holders. In a News.com.au report, the average credit card interest rate has only dropped slightly from 17.41 to 17.35%.
In May 2011, the RBA Cash rate stood at 4.75%. It is now at a historically low 1.50%.
Speaking to the ABC Online, University of Canberra lecturer and former financial counsellor Gregory Mowle said that most of the people he interviewed for a Ph.D. thesis on personal bankruptcy blamed credit cards on their financial woes. Some credit card companies ignore the ASIC responsible lending guidelines and approve cards to those who cannot afford it. According to the Australian Bureau of Statistics, the combined credit limit of all Australians was $134.8 billion in 2011. It is now $150.3 billion.
In a 2015 Senate Inquiry into credit cards, prominent financial commentators Paul Clitheroe, David Koch and Ross Greenwood gave evidence to support the assertion that irresponsible lending is to blame.
One such irresponsible lending practice is to give new homeowners “compulsory” credit cards with high credit limits. Others may approve credit cards for pensioners and welfare recipients.
NSW Labor Senator Sam Dastayari suggested that banks and credit card companies needed to show customers more proactive support such as contacting customers when their balance transfer periods are due to expire, or if they've only been paying the minimum repayment each statement period.
Though, one could argue that with the wealth of information about minimum repayments, including credit card calculators one can access via smartphones, people only have themselves to blame.
Even so, the 2016 budget set up a new Australian Financial Complaints Authority to oversee dispute resolution for bank, super and financial services customers. Cardholders can use this service to get free advice and seek compensation for unfair treatment.
The top five credit card providers based on market share
Competition in credit cards is heating up. With a raft of new of regulations tabled in the recent Federal Budget, consumers are on the lookout for better deals. So what are the top five credit card providers based on market share? We’ve crunched the numbers, and the results are surprising. Commonwealth Bank leads the pack with a whopping $11.566 Billion (27% in total!) in credit card lending, with ANZ a distant second at a shade under $8 billion. Citi and HSBC also make the list, depriving the fourth big bank (Westpac) of a top spot. Total lending tops $43 billion – that’s $1,808 for every man, woman, and child in Australia!
We sourced this information from the latest public Australian Prudential Regulation Authority banking statistics (March 2017.)
** Based on APRA’s monthly statistics for March 2017 (released 28 April 2017)
More fee changes ahead?
Last year, the RBA capped inter-bank exchange fees at 0.8% of the transaction’s value. This means businesses will pay lower fees for processing Visa, MasterCard and American Express payments. These will take effect from 1 July 2017. The downside is that banks and credit card companies would extract value elsewhere, such as restricting rewards programs or frequent flyer points. As many as 14 card companies have done exactly that, while many have also restricted earning points on BPAY or ATO transactions. The 2017 budget introduced a bank levy, which also means banks may pass that on to customers in the form of fees or rate hikes.
The RBA also curbed excessive surcharge fees by banning fixed-dollar surcharges. This two-prong plan applied to large businesses ($25m turnover or 50+ employees) from 1 September 2016, with all businesses forced to comply from 1 September 2017. This means businesses cannot charge dollar amounts for using credit cards. Instead, they can only charge percentages on the value of the transaction. For example, before the rollout, airlines could charge as much as $17 per flight (on a $250 return domestic ticket) if you used credit. Now that figure is averaging around $3.25.
People who are being overcharged on their credit card transactions can report businesses to the ACCC, which now has the power to penalise companies for this practice.