Credit card interest rates required to cover expenses incurred by banks - ABA
(14 August 2015 – Australia) The Australian Bankers’ Association (ABA) has submitted its report to the Senate Standing Committee on Economics Inquiry into credit card interest rates, pointing to the risks banks face to remain competitive while remaining responsible.
ABA executive director Industry Policy, Tony Pearson said: “The credit card market is very competitive and there is wide choice for consumers.
“There are at least 200 products on offer from 70 different providers.
“Credit cards are unsecured lending products and therefore riskier, so their interest rates will typically be higher than for housing loans.
“However, most credit cards offer interest free borrowings if the balance outstanding is paid by the due date.
“Credit cards have many features and services which contribute to the way they are priced.
“These include the costs of funds, credit losses, special services such as reward programs and travel insurance, scheme fees, security and fraud protection, and the costs of changes in regulation, technological innovations and product improvements,” he said.
“Funds borrowed at the cash rate are only one component of the pool of funds which underpin the credit provided, which in turn, are only one of the expenses incurred by banks in providing credit cards.
“The cost of funds as a factor in the total cost of providing credit cards is lower now than it was six years ago.
“Since the global financial crisis, banks have had to reprice risk in response to the increased volatility in financial markets.
“Accordingly, we have seen the gap widen between the cash rate and advertised interest rates on a range of household lending products – not only credit cards, but also mortgages, personal loans and some deposit products.
“Credit cards are an attractive and convenient payment method and there are strong protections in place for customers.
“Banks have legal responsible lending obligations and customers are protected against fraudulent transactions.
“In addition, most banks meet voluntary obligations under the Code of Banking Practice and have supplemented these protections with initiatives to improve money management skills,” Pearson said.
As well as looking at the interest rates and key costs of credit cards, the submission discusses the characteristics of credit card holders in Australia, credit card fees and ATMs.
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