The head of the competition regulator has said Australia’s major banks are making huge margins on credit cards with the gap between credit card interest rates and the Reserve Bank’s official interest rate now at a record high.
Rod Sims, the chairman of the Australian Competition and Consumer Commission, said the big banks were clearly charging interest rates “considerably above costs” and it was something “that needs to be looked at”.
The gap between credit card rates and the official cash rate is now more than 18% – the largest it has been in 27 years, since data has been kept – after the major banks failed to pass on any of the Reserve Bank’s rate cut last week to credit card holders.
Labor leader Bill Shorten has called on the banks to explain themselves, saying there is no reason the gap should be so big.
“There is no case being made by the banks for the reason why, whenever is there is a reduction in interest rates, even if they pass some of it through to mortgages and some through to depositors, you never see significant reductions in credit card interest rates,” he said on Wednesday.
“Deposits are relatively low return, but credit card interest rates are relatively high. And it’s not good enough for the banks to ignore credit card holders, mortgagees and small businesses just in the pursuit of bigger and bigger, bloated bottom line.”
The Commonwealth Bank unveiled a record full-year profit after tax of $9.45bn on Wednesday, an increase of 3% on last year, just a week after refusing to pass on the rate cut in full to mortgage holders.
Ian Narev, the Commonwealth Bank’s chief executive, defended his decision not to pass on the RBA’s full rate cut, saying whenever the cash rate was lowered it made life harder for depositors whose income relies on interest rates.
Sims told Guardian Australia it was clear the state of competition in the credit card sector needed investigating., given the gap between the cash rate and interest rates on credit cards.
“It’s a classic example of, you look at that and you say how does that continue?” he said.
“Now, it may not just be a competition issue, in terms of entry barriers and how they manage to keep that market so lucrative.
“It could be something that needs to be looked at from the consumer side as well, like why are consumers so sticky [and don’t shop around for the best offer].
“It’s a key sector of competition you’d want to understand better. Those are huge margins. They’re clearly charging interest rates considerably above cost.”
Asked why the CBA did not pass on any of the Reserve Bank’s rate cut to credit card customers, a CBA bank spokesman said only:
“The official cash rate is only one factor in determining the interest rates on credit cards. Credit card interest rates are determined in a different way from home loans as they are a form of credit that is not secured to assets.”
Sims said he was looking forward to to a Productivity Commission review of competition in the banking sector, flagged by the Coalition in response to the financial system inquiry.
He said the review must look at the credit card sector.
