Victoria’s Labor government has urged the federal government and the major banks to review credit card interest rates, stating that there are growing concerns that they are “excessive” and out of step with other interest rates.
Treasurer Tim Pallas and Finance Sector Union state secretary Nicole McPherson have urged the major banks and the federal government to take action immediately to avoid consumers being exposed to what they said was “an unreasonable or unfair financial burden from high credit card rates”.
This has followed a letter issued by the Labor government to federal Treasurer Josh Frydenberg, and each CEO of the National Australia Bank (NAB), ANZ, Commonwealth Bank of Australia (CBA), Westpac, Bendigo and Adelaide Bank, Bank of Queensland, and Macquarie Bank, seeking what it said was an urgent review.
According to Mr Pallas, there is currently one legislative restriction on credit card interest rates that allows a maximum rate of 48 per cent, which he said is “woefully inadequate” in the current low interest rate environment.
As such, the Victorian Labor government is calling on the Commonwealth to investigate the option of mandating a maximum margin between credit card interest rates and the cash rate.
The government suggested that this could be implemented in a similar fashion to the current maximum interest rate which applies for all credit contracts that fall under the National Consumer Credit Protection Act 2009.
The government’s call for policy change around credit card interest rates has followed a recent appearance by Dr Philip Lowe in a Senate standing committee on economics legislation hearing, in which Dr Lowe expressed frustration that some credit cards continue to charge interest rates of 20 per cent or more despite the RBA lowering the official cash rate to a record low of 0.10 per cent.
During the hearing, Dr Lowe said: “People write to me all the time and say: ‘This is a disgrace,’ and ‘How can this possibly be?’ and I have to say I don’t have a good response for them other than: there are credit cards in the Australian marketplace with much, much lower interest rates – perhaps high single digits – and, as I say to people with mortgage debt, shop around, because there are good products out there in the marketplace that offer people much better deals.
“So, I say to people: if you’ve got a credit card with a high interest rate and you don’t like it, go and find another one, because there are ones out there, and if, collectively, we, as Australians, do move to the better products, the banks will have to withdraw the bad ones – the bad, high-interest-rate ones.”
The Labor government said that it shares Dr Lowe’s concerns and urged action by banks, regulators and policymakers to ensure that consumers are “not exposed to an unreasonable or unfair financial burden as a result of excessive rates”.
Mr Pallas and Ms McPherson said that lowering credit card rates would assist customers with credit card debt and support them and boost economic recovery from the coronavirus pandemic.
Commenting further, Mr Pallas said: “Our banking leaders and the federal government must act to ensure consumers are not exposed to an unreasonable or unfair financial burden from high credit card rates.”
“Banks have benefited from excessive interest rates for far too long. It’s time they do the right thing and start earning back the public’s respect.”
Ms McPherson also spoke about the issue, concluding: “It really is open slather when it comes to the credit card market, where interest rates fail to reflect the cash rate.
“Finance Sector Union members are experiencing an increased focus by banks on selling these high-margin products – this can lead to a tragic cycle of spiralling debt for the customer, and stress and pressure on Finance Sector Union members to sell.”
Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.
Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.