Lenders have failed to reduce sky-high interest rates of close to 20% they charge on some credit cards even as official rates have plunged to close to zero, new data shows.
The data, compiled for Guardian Australia by research house Canstar, shows that since 2012 the average rate charged on cards that have rewards schemes attached has dropped by just 0.01 percentage points, to 19.84%.
Over the same period the Reserve Bank has slashed cash rates by 3.4%, setting a new record low of just 0.1% at its meeting this month.
Rewards cards include those branded with store names, such as the Harvey Norman Latitude Mastercard GO card that consumer group Choice gonged with a Shonky award on Tuesday due to its 22.7% rate.
In Canstar’s data the Latitude card’s rate tied for highest with a David Jones card issued by American Express, but others were not far behind.
Myer-branded cards were charged at 20.69%, Woolworth ones at an average of 20.24% and Coles cards at an average of 17.66%.
Steve Mickenbecker, Canstar’s group executive of financial services, said rates on rewards cards had not reduced because lenders were unable to make as much money as they used to be able to from cards with lower rates.
This was partly because annual cardholding fees had not increased in a decade and the fees lenders charge merchants to use their cards had actually decreased due to pressure from the RBA, he said.
“Unfortunately if you’re paying interest you’re subsidising everyone who’s getting the rewards,” he said.
“The debt on cards is falling and cards are being cancelled, so fewer borrowers are covering the costs of the services that credit cards provide.”
Canstar’s data shows the rates on other forms of lending had fallen broadly in line with official rates.
Rates on no-frills cards – ones that do not offer rewards for spending – had fallen by an average of 3.22 points since 2012, from 16.6% to 13.38%, while the average variable home loan rate fell 3.04 points, from 6.38% to 3.34%.
Mickenbecker said a big chunk of the fall in the rates charged on no-frills cards came in September this year, when banks introduced new low-rate products.
“I wish they would also turn around and convert some people across who are in those high-rate cards,” he said.
The chief executive of the Consumer Action Law Centre, Gerard Brody, said credit card debt was the number one reason why people contacted his organisation seeking help and blasted the way Latitude cards were sold to Harvey Norman customers.
“That model is promoted in-store as buy this computer or buy this product interest-free, but what they actually get is a credit card,” he said.
“People tend to think that an available credit limit is their money because they trust that the credit provider has assessed that it is suitable for them,” he said.
He said he was concerned that the situation would become worse when responsible lending laws were rolled back, as proposed by the treasurer, Josh Frydenberg, after a lobbying campaign by the banks.
“If we learned one thing from the banking royal commission, it’s that if there’s no sort of threat of a penalty for noncompliance, these rules are observed in the breach,” he said, meaning they were more often broken than followed.
He said giving someone a credit card when they really wanted a loan to buy a TV was “likely to breach the existing responsible lending laws”, but retailers were currently exempt from them under a loophole the royal commission recommended should be closed.
A Latitude spokesman said Brody’s description of how the Harvey Norman cards were sold was not accurate. He said they could be applied for online as well as in the store and “applicants are made fully aware that they are applying for a general purpose credit card with promotional offers”.
Applicants could choose to borrow only the amount of the initial purchase and “a large percentage of customers pay no interest at all”, he said.
He said it was “utterly false” that the cards were issued using a loophole in the law.
“Latitude has full ownership and accountability of the credit assessment process and operates under the same responsible lending obligations as every other lender, including the major banks,” he said.
“The actual or effective rate paid by the vast majority of Latitude GO card customers is significantly lower than the maximum rate due to the take-up of interest-free promotional offers.”
He declined to say how much Latitude pays Harvey Norman in commissions.
Brody said that in July and August, 18% of callers to Calc’s national helpline rang about credit card debt. The next highest cause of distress was utility bills, at 15%, followed by personal loans (9%) and mortgage or rental arrears (6%).
“About half have more than $10,000 of credit card debt,” Brody said.
“About once a week we speak to someone with more than $100,000 in credit card debt. It’s usually someone who’s been in small business and their personal and business finances have been intermingled.”
He said the coronavirus pandemic was making the dangers of credit card debt more acute.
“We are concerned that people who have lost their jobs are turning to credit cards to prop up their income, and paying 20% interest can really exacerbate their situation,” he said.
