The recent cut to interest rates hasn’t just had an impact on the real estate market, there have been some questions raised about the amount Australians are paying in credit card interest. Namely, are some banks charging too much? According to a number of voices in the finance industry, this is certainly the case and the Reserve Bank is under a large amount of pressure to provide answers.
According to the Australian Securities and Investments Commission (ASIC), Australians owe around $33 billion on credits cards – that’s equivalent to $3,300 per card holder, on average. On top of that balance, the same card holder may need to pay around $600 in interest per year if their rate is between 15 and 20 per cent.
However, many major banks have interest levels that are far higher than the official rate set by the Reserve Bank of Australia (RBA). This divide has grown considerably in recent years. In fact, while the Reserve Bank’s historically low rate sits at 2 per cent, the highest credit card rates can be well over 20 per cent, according to consumer advocacy group Choice.
This topic has now been raised at a federal level. A June 1 probe saw top officials from the Treasury and the RBA asked if they were concerned about the spread between the official rate and credits cards, as well its impact on households. RBA Assistant Governor Malcolm Edey said the Reserve Bank was aware of the disparity, but noted it is not the bank’s responsibility to query major banks on their credit card rates.
“I don’t know whether that’s a job for the Reserve Bank or for another agency like [the Australian Prudential Regulation Authority] or Treasury,” Dr Edey said.
How are households coping?
So, are high rates having an impact on household finances? Unlike a mortgage, credit cards are a type of debt designed to be paid off quickly and can gather a large amount of interest if left to sit. However, according to the Australian Bankers’ Association (ABA), households are dealing well with the repayment obligations and are using their credit cards responsibly.
The ABA report uncovered that while the total balance outstanding on cards rose 2.9 per cent over the year to March 2015, the balance accruing interest fell by 2.0 per cent. In fact, on average per card, the balance gathering interest is sitting at its lowest level in 8 years, according to the ABA. This could suggest that card holders are feeling comfortable in taking on more debt, but are careful to make minimum payments promptly to avoid paying too much interest.
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