Westpac offers to suspend credit card interest

Westpac is offering to suspend credit card interest payments for customers hit by the coronavirus downturn.

Westpac is the first major lender to offer to suspend credit card interest for customers hurt by the coronavirus downturn.

Westpac is offering customers facing financial distress the option of having interest payments waived, as part of a coronavirus support package.

Australia’s second largest bank will offer a three-month support package, which will enable credit card users to have charged or accrued interest payments applicable to their outstanding debt waived.

Customers who suffered a loss of income due to job losses or reduced hours will be eligible for the scheme.

Westpac is the first major bank to announce a pause in interest charges, with other financial incumbents only offering reduced minimum payments that still incur interest charges on outstanding balances.

Westpac’s consumer chief executive David Lindberg, said the bank has experienced a surge in credit card related hardship inquiries due to the pandemic, which prompted the additional measures to be implemented.
“Since announcing our consumer COVID-19 support package last month, we have had more than 40,000 credit card customers come to us seeking additional support with managing their finances,” Mr Lindberg said.

“These measures will allow customers experiencing financial stress as a result of COVID-19 to have a temporary reprieve from repayments and interest.”

Its COVID-19 credit card measures include no accruable interest on new purchases or cash advances, no interest charges to existing debts and no requirements to make repayments over the three-month period.

Continual use of credit cards will also be allowed, as long as credit limits have not been reached.

After the three-month period, minimum repayments and interest incurred will resume as normal.

RateCity research director Sally Tindall, said Westpac’s measure go “above and beyond” other types of repayment pauses, which will still lump credit card holders with further interest payments.

“Customers taking out a pause with Westpac won’t have to worry about having a bigger bill than when they started, provided they don’t add to the balance during this time,” Ms Tindall said.

“Putting your debt on hold can end up costing hundreds if not thousands of dollars extra in the long term if your bank keeps charging you interest during the pause.”

The support measures will not be available to people who have already applied for financial hardship assistance on that specific account. The package is only available to card holders who held an account as at January 1.

Westpac’s decision comes as the low-interest rate environment places significant downward pressure on the bank’s credit spreads, with analysts speculating that could impact its capital position and ability to pay its upcoming half yearly dividend.

Commonwealth Bank waived interest and late fees for the month of March only and has urged its customers to move either to a low rate card or a loan instalment plan, if financial stress has been caused by the virus.

NAB will reduce its minimum repayments for at least three months to 0.05 per cent or $5, whichever is greater. The bank is also intending to reduce interest on its low-rate credit card to 12.99 per cent from 13.99 per cent on April 27.

Westpac and CBA both offer low rate cards at 9.9 per cent interest, while ANZ’s starting rate sits at 12.49 per cent.

ANZ has urged its customers to contact the bank to discuss financial hardship measures, which could include lowering credit card limits or the transferral to a low rate card, without benefits.

Macquarie Bank, Woolworths and Jetstar credit cards are no longer taking new applications in light of COVID-19.

RateCity data highlights some credit card providers have hiked rates, despite the Reserve Bank cutting the cash rate to historical lows.

Ms Tindall noted that over the past year, seven lenders increased credit card rates, while 11 providers cut at least one card option. Ms Tindall noted both Westpac and ANZ increased rates over the past 12-months.

Within RateCity’s database, the lowest credit card on offer is 7.49 per cent, while the highest rate is 24.99 per cent.

“When you look over time you can see that there’s no real correlation between standard credit card rate and the cash rate anymore,” Ms Tindall said.

“However the vast difference in rates between credit cards … suggests there’s more credit card interest rates than the cost of risk.”