The Consumer action Law Centre has weighed into the Senate Inquiry into credit card rates.

Katherine Temple, the centre’s policy officer, told the federal Government’s card inquiry, “every week we hear from someone with credit card debt exceeding $100,000.” The financial counselling helpline gets more than 5000 calls a year. Half of these people have amassed debts on credit cards in excess of 10,000.

Ms Temple agreed that the banks were profiteering from people’s weaknesses. If they cared about their customers they wouldn’t extend credit to those with a track history of not being able to pay.

According to Ms Temple the heart of the problem is a psychological blindspot known as Optimism Bias.

Optimism Bias is the over-estimation of our ability to repay a debt in the future. The consequence of which is that we are incautious about the debt we rack up in the present.

Ms Temple believed banks were using the optimism bias of some customers to gouge huge profits – and in consequence, ruin lives.

“We need structural change to make sure people aren’t being given credit cards that they can’t afford to repay,” said Ms Temple to the Inquiry,.

“The optimism bias means we have a tendency to over-estimate our capacity to pay. That’s why balance transfers are so attractive – it’s basically free money (in people’s minds).


The Australian Securities and Investments Commission agreed with her.

In its own submission it said “people with strong optimism or present biases might begin with the intention of always paying off their balance in full and, based on this intention, may disregard the interest rate on a card in the belief they will not need to pay any interest.”

Consumer advocates then went for the jugular saying the banks were profiting by taking advantage of this psychological vulnerability.

“At the moment it’s based on whether you can pay the monthly minimum,” said Ms Temple.

“So if something happens – like job loss, or you get sick, or you have a relationship breakdown – you can find yourself in trouble.”

And then you are a debt-slave for life.

Sam Dastrari, Labor senator and inquiry chariman, accused the banks of running a ‘confusopoly’. He believes credit card companies deliberately market their products in ways that are difficult for consumers to understand and compare; with the result that consumers end up with the wrong card for their needs and terms and conditions that exploit rather than benefit them.


The credit card inquiry is due to report its findings to the Senate Economics References Committee by November 24.


If you are having difficulty paying your debts, you can talk to an independent financial counsellor at no cost by calling 1800 007 007.

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