Scott Morrison is cracking down on credit cards

From Business Insider.

Australians have around $52 billion in debt outstanding on credit cards and the federal government is going after this lucrative part of the banking sector with four tough new measures in a crackdown on card debt.

Treasurer Scott Morrison has announced plans to change the way eligibility for a credit card is assessed, shifting it from the ability to pay the minimum repayment to being able “to repay the credit limit within a reasonable period”.

Before the end of the year, Morrison has pledged to pass legislation banning unsolicited offers of credit limit increases. The ban follows on from changes in 2011 which stopped card issuers offering written offers to increase credit limits unless the customer had already given consent. Banks switched to verbal offers as a way around the laws.

The remaining changes will see interest calculations simplified and force providers to offer online options to cancel cards or to reduce credit limits.

Morrison argues that under the current arrangements, people enticed to a card by an interest-free period have no way of calculating the cost and interest charges if they do not pay off the balance in full when the offer period ends.

Such are the technicalities and complications, most consumers have no idea how interest charges apply, and therefore incur heavy interest charges after the interest-free period when their balance is not paid in full.

Morrison said the government was targeting “unfair and predatory practices” by credit card providers.

“These measures will deliver the first phase of reforms outlined in the Government’s response to the Senate Inquiry into the credit card market,” he said.

“The reforms will substantially reduce the incidence of consumers being granted excessive credit limits and building up unsustainable debts across multiple credit cards.

“Collectively, these measures will help prevent the debt cycle that many Australians find themselves in.”

Of the $52 billion owed on 16.7 million credit cards in Australia, which often attracts interest charges of around 20%, the average outstanding balance is $4,730.

Westpac Plans to Launch Low Rate No Frills Credit Card

During today’s evidence to the House Standing Economics Committee, Westpac CEO Brian Hartzer confirmed they are planning to launch a no-frills (e.g. no travel insurance) credit card with an interest rate below 10% and a limit of somewhere between $2,000 and $4,000 depending on ability to repay. The launch is expected within the next 2-3 months.

CBA Card Holders Will Be Able To Close Accounts On Line

CBA says CommBank customers will soon be able to close their credit card account online in real time giving them even greater control over their financial wellbeing.

In an Australian first, CommBank credit card customers will be able to close their credit card account online in real time giving them even greater control over their financial wellbeing. The fully digital experience will enable customers to close their credit card using the CommBank app or online without the need to go into branch or speak to our contact centre.

Clive van Horen, Executive General Manager Retail Products and Strategy, Commonwealth Bank said this is proof of the bank innovating to help customers have more control of their finances.

“Online credit card closure is another step on the path to providing customers with greater control of their financial wellbeing. We introduced Lock, Block, Limit in 2014 to provide customers with extra security and convenience at their fingertips, in real time. Last year we added spending caps and real time credit limit decreases. Next month customers will receive instant transaction receipts on their phones.

“Soon customers can go online to close their credit card at a time that suits them, simply with the app or NetBank,” Mr van Horen said.

Since launch more than one million cards are using “Lock, Block, Limit” through the CommBank app and NetBank, with this number increasing by around 5,000 each week.

“We are continuing to innovate and giving more control to credit card holders,” Mr van Horen added.

The real time, online credit card close feature will be available to customers later in 2017

Choice Calls For Easier Credit Card Cancellation

Choice, the consumer group, has called for consumers to be able to cancel their credit cards immediately online, rather than jump through the hoops which the banks currently prescribe.

They recently reviewed the cancellation policies of the big four and found a distinct lack of easy cancellation options.

What? No online cancellation?

Instead of being able to cancel your card online and quickly cut ties with the debt monster, the banks force you to call, write a letter or visit a branch in person.

Meanwhile, almost all other banking services – including applying for a credit card and having it approved – are available online these days.

To us, it looks like a blatant attempt to keep you attached to your credit card and keep the debt clock rolling. That’s why we’ve been pushing to have the tactic abolished since August 2015.

Our review comes as the banks are set to face a Parliamentary Inquiry on Friday this week, and it follows attempts by ANZ and Westpac to ward off credit card criticism by promising to cut interest rates on some “low rate” cards.

Jumping through hoops

Here’s what the banks require if you want to cancel your credit card.

ANZ

  1. Call or write to ANZ.
  2. Return the card: “ANZ will only cancel the credit card when the account holder has returned it to ANZ cut diagonally in half (including any chip on the card) or has taken all reasonable steps to return it to ANZ”.
  3. Any additional funds will be returned by bank cheque.

NAB

  1. Call, write “or otherwise advise NAB in a manner acceptable to NAB”.
  2. Cut the card diagonally in half.
  3. Additional funds will be returned by bank cheque. NAB will charge its “usual fee” for issuing the cheque. Cash out is only available for amounts under $5.

Westpac

  1. Call, write or visit a Westpac branch.
  2. Promise to destroy the card.
  3. Additional funds are paid by bank cheque or directed into another account by direct debit.

CBA

No instructions are provided for card cancellations in the CBA credit card ‘conditions of use’ document. Customer service representatives instructed CHOICE to call the credit card team to cancel, which can only be contacted Monday to Friday, 9.00am–5.30pm.

Chasing fees and interest

“In the age of online banking if defies belief that ANZ, NAB, Westpac and Commonwealth all require you to call or email them when seeking to cancel a credit card,” says CHOICE head of campaigns and policy Erin Turner.

“It seems clear that the big banks’ ‘go slow’ on card cancellations is about protecting revenue from interest and fees, with data showing the big banks slug consumers with an average annual fee of $146 compared to just $58 through a mutual or customer-owned banks.

“Unfortunately, getting stuck paying excessive credit card interest is only one of the traps consumers face, with many of us paying excessive annual fees when we fail to cancel a card.”

The national collective credit card debt hovers at a staggering $32 billion or so at the moment (about $4300 per cardholder). If you’re one of those consumers who’ve gotten in over your head, it’s generally a good idea to cancel the offending card once you’ve climbed out of debt.

That would be doubly true if you happen to have a card from one of the big four banks: CBA, ANZ, NAB and Westpac. Their standard interest rates are among the highest. And their so-called low-interest cards aren’t that much better – or at least not better enough.

Time For Some Straight Talk On Credit Card Rates

The ANZ move to cut rates on some of its cards will stimulate more discussion on the economics of the credit card business. It may appear a bold move, but we are not so sure.

Actually all the the various bank and ABA initiatives are not necessarily going to help to rebuild trust in the banks. Like a running sore, the ongoing exposure may well reinforce current negative consumer perceptions. A point event like a specific review might actually draw the poison more effectively!  And yes, there are major issues to address.

But, today we look at credit card economics. To do this we use the data provided by the RBA.  They show the number of card accounts (not the same as card numbers because some accounts will have multiple cards on them) has been growing, to approach 16.7 million accounts. The number of transactions on these accounts are also growing, with 241m transactions to December 2016.

The average value of a transaction has remained relatively static, with the average purchase around $120 and the average cash withdrawal around $380. But significantly the proportion of account balances which are accruing interest is reducing, with around 40% of accounts being cleared off each month. Households who can clear their cards should do so to avoid interest costs.

We see the monthly flows of new transactions and repayment match quite closely.

The 60% of balances which are revolving incur interest costs. The data shows despite cuts to the RBA cash rate, rates on both low rate and standard rate cards remain high, and indeed, some low rate cards have moved up recently. As a result the average interest margin between the cash rate and the charged rate is higher than it has ever been, on average close to 20%.  This puts the ANZ 2% cut on some cards into perspective!

So, now we know the proportion of cards which are revolving, and the margin, we can estimate the real net cost to the average revolving card holder. We estimate the typical account will incur a monthly interest charge of $57 each month they revolve, compared with $10 in 2003. In fact we see a stable cost until 2008, since when it has climbed substantially.  This is worth about $80m a month to the banks at the current margins.

To broaden the analysis, banks have also been slugging households with higher credit card fees. Again the RBA says, fees rose 6.6% in 2015 (last year of available data) and they took $1.5 billion in card fees in that year. In the past four years, card fees have risen significantly faster than inflation.

Finally, overall personal credit growth has fallen in recent times, as mortgage borrowing roar ahead. This is consistent with our observation that more households are repaying their cards each month.

Later we will look at the broader economics of cards, taking account of loyalty schemes and merchant fees.  Meantime you can read our earlier analysis of credit card economics by segment. But from a margin view, 2% is hardly a generous concession.

ANZ’s new credit card rate isn’t making the cut, say critics

From The NewDaily.

When you’re doing well, a little generosity is appreciated – except if it is too little, which is what consumer advocates and MPs are saying about ANZ’s surprise announcement that it will be trimming interest rates on its credit cards as of February 28.

And make no mistake, ANZ is doing very well indeed.

Last month it announced that profits for the most recent quarter had hit $2 billion, an increase of 31 per cent on the same period last year. More than that, ANZ Banking Group chief Shayne Elliott is upbeat about the burden of bad debts on his outfit’s books and recently scaled back estimates of that red-ink liability.

So given the ANZ’s strong profit result, they can afford to give users of its credit cards a break, right?

Absolutely, says CHOICE’s Tom Godfrey, who doesn’t see the reductions as anything but a very small bone indeed.

Those reductions should have been much larger, Mr Godfrey said, casting the cuts as a case of too little and too late.

“It’s an attempt by ANZ to try and take the heat off themselves and the other banks to show they’re responding to community concerns,” he said, adding that “the big four banks are just not competitive”.

Mr Godfrey noted that the best interest rates – those offered by the credit unions – are under 10 per cent, and he wondered where ANZ’s rival banks found the gall to charge “toxic interest rates” of “around 18 or 19 per cent or higher”. The best credit card rates available in Australia can be as low as 8.9 per cent.

More than 500,000 existing ANZ Low Rate accounts will benefit from the new rates, with the bank estimating that a typical consumer stands to save about $150 a year.

MPs take the credit

The government has praised the bank for the move, with Liberal MP Scott Buchholz saying ANZ has shown “commercial courage” in lowering its rates.

Malcolm Turnbull also claimed credit. Despite his government’s reluctance to conduct a Royal Commission into the banking sector, he said the newly-formed economics committee, before which the bank CEOs appear, had now provided real results.

“I am bringing the banks regularly before the house economics committee and they are being held to account for their actions and you are seeing real results,” Mr Turnbull said on Sunday.

Neither Mr Godfrey’s criticism nor South Australian Senator Nick Xenophon’s faint praise for the move ruffled the head of ANZ’s retail and commercial unit, Fred Ohlsson, who crowed that the reductions mean customers will have “the best rate available from any of the major banks or any of the regional banks owned by the majors”.

ANZ estimates that a typical consumer stands to save about $150 a year under the new rates.

And that’s the whole point, according to Senator Xenophon, who scoffed that ANZ customers have good reason to be even more miserly with their gratitude than the bank has been with its rate cuts.

“The gap between the official cash rate and credit card rates has never been higher,” he said.

“We really need to look at some form of either greater market competition, or the banks need to really explain themselves in gouging consumers in this way,” said Senator Xenophon, who has been a strong backer of Labor leader Bill Shorten’s call for a royal commission into the banking industry.

Mr Buchholz cited the grilling late last year of bank executives who were dragged before a parliamentary inquiry as a prime factor motivating Sunday’s announcement.

“We will have the banks appearing in the next fortnight in Canberra, along with the Australian Banking Association, where I will continue to take a similar line of questioning with those banks that haven’t taken the commercial choice to shift their interest rates yet.”

ANZ To Cut Some Credit Card Rates

ANZ has today announced it will reduce purchase interest rates on two credit cards by up to 2.00%pa, which is the lowest these rates have been for customers since 2003.

Effective Thursday 23 February, ANZ will reduce the purchase rate on its Low Rate Platinum card by 2.00%pa to 11.49%pa, and its Low Rate Classic card by 1.00%pa to 12.49%pa.

More than 500,000 existing ANZ Low Rate accounts will benefit from the new rates with the majority of those customers who pay interest every month to save about $150 a year.

Announcing the changes, Group Executive Australia Fred Ohlsson said: “Our customers with Low Rate accounts are typically middle income Australians who predominantly use their credit card for everyday household purchases, such as groceries.

“We’ve listened to customer feedback about credit card rates and decided our Low Rate customers would benefit most from a rate reduction as they are more likely to have ongoing debt from month to month. These changes mean they will have the best rate available from any of the major banks or any of the regional banks owned by the majors,” Mr Ohlsson said.

ANZ’s Low Rate Classic card also offers the lowest annual fee of the major banks for similar cards at $58, and has a minimum credit limit of $1000 making it accessible to a wide range of customers.

The Low Rate Platinum card has an annual fee of $99 and a minimum credit limit of $6000. It also comes with a range of insurances, including overseas travel and medical, and up to nine additional card holders at no extra cost. Both cards feature up to 55 interest free days on purchases.

Key crossbench senator Nick Xenophon welcomed the announcement, but said the banks needed to do more to address the cost of credit cards.

“The gap between the official cash rate and credit card rates has never been higher and I think that we really need to look at some form of either greater market competition, or the banks need to really explain themselves in gouging consumers in this way,” he told ABC TV on Sunday.

Lost or stolen cards replaced instantly with ANZ digital wallets

ANZ today announced its customers can continue to use their digital wallets when they report their card as lost or stolen with a new service that automatically updates their replacement card details.

As soon as a customer calls to report their debit or credit card as missing, ANZ puts a stop on the original card and automatically uploads the new virtual card details to the customer’s digital wallet.

ANZ Managing Director Products Australia, Katherine Bray said: “Our customers report about 670,000 cards as lost or stolen each year and we know waiting for a new card to arrive can be a real inconvenience.

“Now our customers can keep using their digital wallet, whether it’s Apple Pay or Android Pay, to make purchases while they wait for the new physical card to arrive in the mail.

“For many customers their smartphone is now the primary way they do their banking, including making purchases, so we’re working hard to keep improving their mobile experience with changes like this.”

ANZ has also made it possible for customers to keep their existing Personal Identification Number (PIN), provided it hasn’t been compromised, meaning less change with the same high level of security.

ANZ is the only major Australian bank to offer both Apple Pay and Android Pay with about 8.3 million transactions made across the bank’s digital wallets last year.

Credit Cards Take A Christmas Hit

Christmas is a time when our credit cards get a workout. Data from the RBA shows a significant hike in the number of transactions leading up to the holidays. We marked these  in yellow. But it is worth noting that whilst credit limits are rising, revolving balances are not.

But card use varies by our household segments as used in our surveys.

Using data from our household surveys we find that the relative proportion of households with credit cards varies considerably.  Almost all younger households have cards, as do more affluent households. Disadvantaged households are less likely to had access to a credit card.

If we then overlay the average transaction turnover and revolving balances these also vary by segment. For examples, wealthy seniors use their cards and have high turnover balances, but revolve very little. On the other hand, exclusive professionals use their cards, and revolve significantly.

Younger families are also using their cards, but the average balance and turnover is lower.

This once again highlights the importance of customer segmentation within financial services. You can read more about our analysis of credit card economics here.

 

 

Time To Read Your Credit Card Small Print

Our research shows that households do not know what they are paying in fees and charges on their credit cards, nor the value of “rewards” on these cards. This is over and above transaction surcharging which has been subject of recent regulatory review.  The RBA says in 2015, households paid $1.5 billion in card fees, up 6.6% from the previous year.

Bank-Fees-2016-2

In fact there have been a number of changes to the terms and conditions of credit cards from several of the large providers. This is in response to recent changes to payment regulation, and banks seeking to capture more value from non-revolving card holders.

It is worth checking the true value of rewards points, which we think are being devalued (the so called earn and burn rate) means you spend more for less benefit. In addition, fees on reward cards have been rising steadily.

In addition, there are a range of other potential transaction fees. For example, an Australian dollar transactions from overseas merchants now carries a fee, by for example the CBA. Whilst foreign currency transactions did cop a charge, Australian dollar transactions did not. The CBA says:

We charge you an international transaction fee when you make a purchase or obtain a cash advance (whether in a foreign currency or Australian dollars):

While overseas; or In Australia (for example online) where there is an overseas connection, as the merchant, or the financial institution or entity processing the transaction, is located overseas. The international transaction fee for these transactions is:

  • Transactions converted by MasterCard® or Visa – 3.00%
  • Transactions converted by American Express® – 2.00% (plus a currency conversion factor of 1.50% which is included in the converted transaction amount)
  • Transactions in Australian dollars but with an overseas connection – 3.00%
  • In some cases, overseas merchants may allow you to pay in Australian dollars, e.g. when you’re shopping online or over the phone. This is still considered an international transaction because your transaction is processed overseas.
  • Note: Even though a merchant has a website address ending in ‘.com.au’ and displays prices in Australian dollars, they may still be located overseas or otherwise choose to process their credit card payments outside of Australia.  It’s best to check with the merchant before you pay if you are unsure.

Depending on your card use – if you revolve and pay interest, then the interest charges will swamp most other charges, – it would be worth looking at some of the non-reward, no fee cards which are available, because these sneaky little fees soon add up.

We think there is a case to make the disclosure of fees on credit cards clearer, and for consumers to reconsider whether reward schemes attached to cards are worth having at all. You can compare cards here.