Revealed: How banks profit from ‘zero per cent’ balance transfer credit cards

A ZERO balance transfer deal on your credit card may seem like a great idea at first, but it turns out that it does not necessarily help pay off your debts.

AT LEAST three in 10 customers do not pay off debt transferred to a new credit card under zero per cent balance transfer deals, a major bank has revealed.

In a submission to a Senate inquiry into credit-card interest rates made public yesterday, ANZ said 70 per cent of people either transfer again or clear their balance before a high interest rate kicks in.

News Corp Australia asked ANZ what proportion transferred again and was told the calculation could not be done prior to deadline, but would be before the bank appeared at the inquiry later this month.

The submission said: “In ANZ’s experience, most customers use balance transfers as designed — to reduce interest payments and repay their credit card debt.”

Too many ... Three in 10 credit card holders do not pay off debt transferred to a new credit card under zero per cent balance transfer deals, ANX says. Picture: Supplied

However, in another new submission, Financial Counselling Australia, said: “Balance transfers clearly target people struggling with debt and can leave them worse off”.

Such offers, FCA said, should be limited to people who have managed to people who have shown an ability to clear their debts.

In defending itself, the bank said about half of all credit-card customers do not pay interest. Sixty per cent of ANZ rewards cards customers “do not generally pay interest”. Holders of its “low-rate” 13.49 per cent card were most likely to pay interest, it said.

ANZ sought to further justify its rates by arguing that fraud costs had doubled over the past four years, driven by consumers’ love affair with buying from abroad via the web.

It provided the inquiry with data suggesting credit-card providers collectively lost $300 million in 2014 on “card not present” fraud — which includes online shopping. That was an increase of 42 per cent or $90 million on the year before. Nearly two-thirds of card fraud had international links.

Explanations ... In seeking to justify its high credit card rates, ANZ provided the inquiry with data suggesting credit-card providers collectively lost $300 million in 2014 on “card not present” fraud — which includes online shopping. Picture: Supplied

ANZ revealed rewards schemes make up 27 per cent of the expense of providing cards — more than the cost of the actual money lent, according to Commonwealth Bank’s earlier submission. ANZ said funding was 35 per cent of costs. Chasing debts and fraud was 30 per cent.

The Senate inquiry’s hearings resume today in Melbourne. It will not hear from the Big Four today.

Meanwhile, about 25,000 households have joined a campaign seeking a better deal on unsecured credit. The Big Debt Switch began on Monday.

To find out more, go to www.onebigswitch.com.