A non-major lender is recommending reforms to the credit card market as the financial services industry braces for the next bank inquiry.
The reforms – which industry superfund-owned bank ME first recommended in a submission in 2016 to Treasury’s public consultation – are designed to make it easier for customers to compare, switch, repay, and avoid unnecessary costs.
In a letter to members of the standing committee on economics, which is currently inquiring into and reporting on a review of Australia's four major banks, ME again highlighted the five areas it believes should be reformed.
1. Mandating comparison rates for credit cards to make it easier for customers to compare, as is currently done for mortgages and like they do in the UK.
2. Requiring banks to prominently advertise credit card comparison rates alongside the headline rate in marketing materials, as is required for home loans, to make it easier for customers to compare the cost of credit cards.
3. Making switching easier, given technology to transfer direct debits isn’t complex, to make the credit card industry more competitive.
4. Raising the floor rate for minimum monthly repayments from 2 per cent, given we know paying a little bit more each month can save customers handsomely.
5. Banning proactive credit limit increase offers to reduce the number of customers getting into serious debt.
ME CEO, Jamie McPhee, said that while credit cards are a modern convenience, offers have become too confusing and standardisation is required.
“There are dozens of credit cards in the market which apply different fees and use different interest rate calculations, making it difficult for customers to accurately compare,” Mr McPhee said.
“Banning credit limit increase offers and increasing minimum monthly repayments would reduce the number of customers that get into serious debt,” he said.
“Improving competition by making switching easier would motivate banks to make better offers to customers, helping to drive down rates.”
[Related: Post-Christmas debt tipped to hit $397m]