Introduction and overview of the Australian credit card market
On 24 June 2015, the Senate referred matters relating to the
economic effects of credit card interest rates to the Senate Economics
References Committee for inquiry and report by 24 November 2015. The
committee was asked to give particular reference to:
the Reserve Bank of Australia's cash rate announcement and associated
changes in credit card interest rates;
the costs to banks, credit providers, and payments systems, including those
- credit risk and default rates, and credit risk pricing,
various credit card loyalty programs, and
consumer protection measures, including reforms introduced following the
global financial crisis,
transaction costs, including interchange fees, on the payments industry;
the costs to consumers, including those related to:
how and when interest is applied,
minimum monthly payment levels,
various credit card loyalty programs of other users, and
- card fees, including ATM and POS fees;
what impact competition and price signals have on the credit card
how the enforcement of responsible lending laws and the national
consumer credit regime affect consumer costs;
how consumer choice of credit card products can be improved, with reference
to practices in other jurisdictions; and
any other related matters.
On 23 November 2015, the Senate extended the reporting date to
3 December 2015, and on 30 November 2015 the Senate again
extended the reporting date to 16 December 2015.
Conduct of inquiry
The committee advertised the inquiry on its website and called for
written submissions. The committee also wrote directly to a range of government
departments and agencies, companies, industry bodies, consumer groups and
academics with an interest in matters relating to credit cards, drawing their
attention to the inquiry and inviting them to make written submissions.
The committee received 37 submissions, which have been published on the
committee's website. The committee held five public hearings: two in Sydney
(27 August and 16 October 2015), one in Melbourne (3 September
2015), and two in Canberra (22 September and 9 November 2015).
The committee thanks all those who assisted with the inquiry, especially
individuals and organisations that made written submissions and the witnesses
who put in the time and effort to appear before the committee.
Background to inquiry
In part, the committee's interest in regard to credit card interest
rates and the credit card market more broadly was stimulated by a discussion
about these subjects during Senate Estimates in June 2015. In this discussion,
the Secretary to the Treasury, Mr John Fraser, indicated that Treasury had
recently considered the gap between the cash rate and credit card interest
rates, and believed more work might be required in this space. Mr Fraser told
My personal view is that it is an issue well worth further
and deeper investigation and consideration. I am driven partly by the fact that
it does seem that the people who pay these credit-card interest rates—those who
do not fully pay off the amounts—tend to be people, perhaps, less capable of
servicing that debt, and that worries me. I think it is something well worth
considering, and we will give some further thought to it.
During the same Senate Estimates hearings, officials from the Reserve
Bank of Australia (RBA) were also asked about the 'stickiness' of credit card
interest rates ('stickiness' meaning that credit card interest rates had not
fallen in line with the fall in the RBA cash rate in recent years). Dr Malcolm
Edey, RBA Assistant Governor (Financial Systems), noted that there were several
factors that might help explain why credit card interest rates had not
responded to a falling cash rate, including higher costs of funding
(independent of the cash rate) and a repricing of risk in the post-Global
Financial Crisis (GFC) period. However, Dr Edey acknowledged that the 'gap
seems high and it is hard to explain why it is as large as it is'.
Dr Edey quite rightly made the point that Australia does not
regulate interest rates, and, as such, there is no interest rate regulator. He
told the committee that Australia does have 'an ACCC [Australian Competition
and Consumer Commission] that can investigate uncompetitive conduct if they see
it, but they clearly have not seen it in this market'.
It was put to Dr Edey that the issue was not so much whether there was uncompetitive
conduct in the market, but whether regulatory settings were conducive to the
promotion of sufficient competition to put downward pressure on credit card
In part, the committee's inquiry has been directed at understanding whether
existing regulatory settings in relation to credit cards are appropriate in
this respect. More broadly, the committee has sought to determine what might be
done to improve competition in the credit card market or otherwise put downward
pressure on credit card interest rates.
Structure of report
Chapter two of this report provides a contextual overview of the
Australian credit card market, with a particular focus on interest rate
settings within that market. A brief overview is also provided of the responsible
lending obligations as they operate in relation to credit card lending.
In turn, chapter three explores the reasons for the apparent
'stickiness' of credit card interest rates in the context of a falling RBA cash
rate. In doing so, the chapter considers the extent to which apparent consumer
inattention to credit card interest rates might be inhibiting downward pressure
on those rates. Chapter three also assesses the explanations provided by the
banks and other card providers for the continued prevalence of high interest
rates despite a falling cash rate.
Chapter four examines the competitive dynamics of the credit card market
and the capacity of consumers to exercise choice in that market. A key focus of
the chapter is how consumers might be empowered to better value and compare
credit cards and switch to a product that best suits their needs and
circumstances. The potential of peer-to-peer lending as an alternative form of
consumer credit is also briefly considered.
Chapter five explains how credit cards often become a 'debt trap', and
suggests reforms that might help consumers better manage their credit card debt
or, better still, avoid accruing it in the first place. Specific consideration
is given to the efficacy of existing responsible lending obligations as they
operate in relation to the credit card market, whether there is merit in
requiring higher minimum repayments on credit card debt, and the role played by
balance transfer offers in shaping consumer decisions about credit card debt.
Chapter five also looks at financial literacy programs and tools in relation to
credit card debt, and evaluates the adequacy of existing support for people
experiencing financial hardship due to credit card debt.
Chapter six considers the related matters of interchange fees,
surcharging and the competitive neutrality of the regulation of credit cards.
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