Greedy banks gouge customers $5.2 billion in interest charges by failing to pass on rate cuts

Banks are making a fortune in interest charges by failing to pass on rate cuts to debt-laden credit card customers. SEE THE CREDIT CARDS YOU NEED TO AVOID

Exclusive: Greedy banks have raked in a whopping $5.2 billion in interest charges by failing to pass on rate cuts to credit card customers.

And this includes an extra $864 million in the past year.

Since the Reserve Bank of Australia has gone on its downwards cutting spiral in the past eight years, the cash rate has plummeted from 4.75 per cent to just 1 per cent.

But in this time banks have barely budged on the interest rates they are charging customers who fail to pay off their plastic in full each month.

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Credit cards remain a “cash cow” for banks at the cost to customers.

Analysis of the cards market by financial comparison website Mozo found the average credit card interest rate today is 17.1 per cent.

This compares to November 2011 when the rate-slashing cycle began and credit card interest rates were on average 17.55 per cent.

So despite the cash rate falling by 3.75 percentage points since 2011, credit card interest rates have only dropped a minuscule 0.45 percentage points.

Mozo’s spokeswoman Kirsty Lamont said credit cards remained a “cash cow” for banks at the cost to customers.

“Customers are still stuck with sky-high interest rates and have been given little relief with being able to pay off credit card debt,” she said.

“The banks know when the Reserve Bank cuts rates the focus is on home borrowers and they know credit card rates go largely ignored so it’s very easy for them to keep rates jacked up.”

Latest RBA statistics found in May 2019 $50.9 billion was owing on credit cards and $31.2 billion was accruing interest.

Credit card interest rates remain on average around 17 per cent.

The Australian Banking Association’s executive director of policy, Christine Cupitt, did not comment on banks not budging on rates but said they remained “fiercely competitive” in the cards market.

“Customers have a very wide range of options when it comes to credit cards with over 200 on the market, some with interest rates as low as 10 per cent and no annual fee,” she said.

“Different credit cards can suit different customers, with some desiring frequent flyer rewards, bonus schemes or simply the lowest interest rate on offer.”

In other countries including the US credit card rates have also remained stubbornly high at about 15 per cent.

In 2011 when the cash rate was 0.25 per cent the average card rate was about 12 per cent.

Under the new Banking Code, which was introduced on July 1, customers are better protected.

This includes forcing banks to remind customers when a credit card introductory offer is about to end, they cannot send unsolicited offers to increase credit limits and customers can reduce their credit limits or close their card accounts online.

The Australian Securities and Investments Commission also imposed new restrictions on card lending in 2019 — lenders must assess card applications based on a customer’s ability to repay the debt back within three years.

@sophieelsworth

Highest credit card interest rates

1. Latitude, GEM Visa Card, 24.99 per cent.

2. Latitude, Mastercard, 24.5 per cent.

3. Skye, Mastercard, 23.99 per cent.

4. Latitude, GO Mastercard, 22.74 per cent.

5. 28 Degrees, Platinum Mastercard, 21.99 per cent.

Source: Mozo.com.au.