Beware the hidden landmines in our credit card fees

Credit cards have been part of Australian life since the 1970s, offering convenience, though often at a cost. Over the decades, banks have profited handsomely from fees and interest charges that hit the most vulnerable the hardest.

One infamous case involved a low-income customer who checked her balance at an ATM, saw $30, and withdrew it – only to be slugged a $2 inquiry fee that pushed her into the red. The result? A $30 penalty for overdrawing. It’s a stark example of how small transactions can trigger outsized punishments in a system rigged against the poor.

The convenience of credit cards comes at a cost. Credit: Aresna Villanueva

The mistreatment continues when penalty interest rates are often wildly out of step with the Reserve Bank’s steadily falling cash rate. On overdue accounts, American Express charges 23.99 per cent, Latitude 27.99 per cent, and Virgin Money 20.74 per cent. These figures are not just high – they’re psychologically engineered to appear more palatable. Pricing just under round numbers, a tactic long used in retail to mute the real cost, is now embedded in credit policy too. But whether it’s $27.99 or 28 per cent, the pain to struggling cardholders is the same.

Given the huge cost of being late with repayments, I’ve always made a habit of paying the balance the day the statement arrives, so there can be no arguments about when it was paid. This has worked well for many years. The credit card companies always send an email when the statement is available, and I’ve relied on those emails – never keeping a diary note – until now.

In June, I began receiving texts allegedly from Virgin, asking me to contact them about my credit card. I thought they were scams and ignored them – understandable, given the influx of bogus messages we receive these days. Then the June statement arrived with a big heading: “Your account is overdue.” That came as a major shock – it’s never happened before. There was also a narration: “interest charged retail”, $79.71.

I considered calling Virgin to explain that I’ve always paid my card in full on time, and that I never received an email alerting me to the statement. But knowing how long the wait times can be, I decided it wasn’t worth it. I paid the full balance that day.

Then the next statement came – and that’s when things really turned sour. Even though I’d paid the previous one immediately, I was hit with another debit: $19.05 for more interest. Assuming a mistake, I rang them to point out that I’d paid before the due date, so further interest made no sense.

That’s when the real kicker came. The woman on the phone said: “Oh no, if you miss one payment, you then lose two interest-free periods.” In other words, even though I’d paid early, I was still going to be charged again.

I told her I thought that was totally unethical, and her response was: “Well, it’s in the terms and conditions.” We all know about the terms and conditions – they are many pages long and typed in tiny print that is far too small for my ageing eyesight to comprehend. My complaints about ethics were not taken notice of, but she did offer to refund both the debits, given my good payment record.

You could say all’s well that ends well – but that misses the point. These rules are hidden landmines, buried in the fine print, designed to trip people up. It’s legalised entrapment, and it needs to be exposed and stamped out. The regulators must act – because the banks won’t.

Noel Whittaker is author of Retirement Made Simple and other books on personal finance.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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