A Senate inquiry into credit card interest rates resumed in Melbourne today. Already explosive information has surfaced about the sneaky tactics employed by providers to make money.

It has been revealed that at least 30 per cent of customers do not pay off the debt transferred to new cards under the zero per cent balance transfer deals.

Once the zero per cent honeymoon rate is over, however, creditors slug hapless debtors with punitive interest rates – that more than recoup their lost profits.

A spokesperson for the ANZ bank said 70 per cent of people who transferred to a zero per cent account transfer again before the punishing rates kicked in. Meaning: the bank makes its profits from the 30 per cent who don’t transfer – hence the staggering interest rates.

The bank said in a submission to the inquiry: “In ANZ’s experience, most customers use balance transfers as designed – to reduce interest payments and repay their credit card debt.”

Financial Counselling Australia disagreed. In their own submission they said: “Balance transfers clearly target people struggling with debt and can leave them worse off.”

The debt spiral is in no one’s best interests. The FCA recommended zero balance transfer products should be limited to people who’ve shown they can manage money and pay off debts. Not doing this only exacerbates the debt spiral for those already bad with money.

The ANZ bank sought to defend itself by saying: customers “do not generally pay interest.” But holders of its ‘low-rate’ cards (13.49 per cent!) were the most likely to be slugged with interest.

The ANZ then had the temerity to cry poor: Fraud costs, they said, had doubled over the past four years. They blamed consumers’ love affair with buying via the internet.

The bank suggested credit card providers collectively lost $300 million in 2014 on ‘card not present’ fraud. They further suggested this was an increase of 42 per cent on the previous year’s figure of $90 million (either way, it’s a drop in the bucket compared to their profits).

The ANZ then lamented the cost of running the rewards schemes associated with credit cards. These schemes account for 27 per cent of the expense of providing the cards – more (they said) than the cost of the actual money lent.

Funding the credit cards were 35 per cent of the costs. Chasing debts and fraud accounted for 30 per cent of the costs.

Savvy consumers are voting with their feet. Already 25,000 householders have joined a campaign for better deals through The Big Debt Switch, which kicked off on Monday.

Leave a Reply

Your email address will not be published.