For more than 40 years, credit-card companies have been cashing in on Australia’s desire to have what they want, when they want it. But soon the extended honeymoon could be over, with several reforms on the table that hope to reign in our enormous credit card debt.
Australia currently owes $51.46 billion on credit cards with $33.1 billion of that in accruing interest – this is the worst level of debt we’ve seen since reporting on our use of credit cards began in the 80s, according to News Corp.
A senate inquiry into credit-card interest rates has unearthed numerous practices that are designed to milk more money out of each of us.
The inquiry is looking into banks’ and other lenders’ credit card interest rates and fees – card rates have been rising despite the official RBA cash rate falling to a record low.
Along the way, other tactics are being explored, even finance commentator David Koch has weighed in, saying the practice of offering unsolicited credit increases must be banned.
“There should be no unsolicited credit cards or credit card limit increases … by stopping this a customer makes a decision,’’ said Kochie.
Another tactic used by lenders is the “zero per cent balance transfer deals”, which the ANZ admits 30 per cent of customers end up failing to clear their balance and paying a higher interest rate, thus ending up worse off.
Kat Lane, from the Financial Rights Legal Centre, which helps many people struggling with credit-card debt says clients are typically paying interest rates of as much as 30 per cent.
Mr Lane says lenders “have Jedi mind-tricked us into thinking credit-card debt is long-term,” and that their interest rates are uncompetitive. The senate has heard that it takes some people decades to pay off their credit card debts.
While it’s easy to throw stones at the credit-card industry, we have to take some responsibility – a survey by ME (formerly ME Bank), reported in The New Daily showed our shocking lack of savvy when it comes to these all-too-easy sources of credit.
The survey found that the vast majority of Australians are settling for interest rates as high as 20 per cent and that a whopping 73 per cent of consumers said they didn’t know the interest rate on their own credit card, while 40 per cent didn’t know whether or not they were paying an annual fee.
Who is to blame for Australia’s credit card crisis? The lenders – or the borrowers?