Incoming treasurer Scott Morrison has had a wake-up call on Australian credit cards.

In a submission to the Senate inquiry into credit cards Federal Treasury said that providers were exploiting ‘consumer inattention’ to keep interest rates artificially high – and thereby reaping usurious profits.

The ever expanding gap between official interest rates and those charged by credit card providers is pure profit.

Instead of competition on interest rates amongst lenders, the competition revolved around rewards and transfer offers.

Deputy Treasury Secretary, Michael Willcock, said advice was being prepared for the Treasurer after meeting with the RBA and the prudential regulator APRA last week.

 

Stephen Mickenbecker, group executive for Canstar (a leading financial products comparison service) pulled no punches when he addressed the inquiry, labelling the widening rates gap an “extraordinary blowout!”

According to research the gap has widened from 8 per cent in 2007 to more than 14 per cent today.

Executive director of the Australian Bankers Association Tony Pearson defended his group saying the credit card market was “strong, competitive, and diverse.”

His group maintained that the amount of interest paid per card had actually fallen since 2012.

That might be so, but the amount of interest paid is $70 per card more than it was in 2004.

Plus the interest paid per household has risen at a faster rate over the past decade.

The ABA also shied away from being reminded of their payment to 2UE and John Laws to ‘tell the whole story’ about the interest they charged.

Comparison services Mozo and Finder have repeatedly shown that nearly half of all credit card holders are likely to have their debt outlive them. The interest rate is just too high.

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