Interest rates on credit cards rise and...don't fall

Interest rates on credit cards rise and...don't fall

23 June 2009

An industry overview of the credit cards industry has shown that while credit cards interest rates were responsive when the official rates were being raised, they did not follow when the Reserve Bank of Australia cut these very same rates to their lowest in history.

An overview by consumer group Choice has detailed how credit cards lenders, that is banks, credit unions and building societies, have remained steady at high interest rates on their credit cards despite the official rate declining with the majority of credit cards now higher in their interest rates than two years ago.

The Choice survey found that the majority of credit cards lenders have only expressed a small decrease in the level of interest rates in contrast to what they have receive from the official interest rate cuts from the Reserve Bank which has declined by 6.25 percent to 3 percent.

The study showed that while credit cards lenders were quick to pass on any interest rate increases, they have not been quite so reactive when it comes to the cuts made to the official interest rate with the majority of credit cards interest rates remaining at that high level. What was interesting to note, the typically cheaper credit cards, that is the low interest rate credit cards and similar actually did not receive the same level of cuts or benefits as the typically more expensive credit cards.

Choice found that the average interest rate increases on two different styles of credit cards were similar with budget credit cards averaging an increase of 11.15 percent to 12.05 percent since July 2007 whereas the more expensive-style credit cards averaged an increase of 17.8 percent to 17.9 percent.

Credit card lenders have defended their lack of action when it comes to lowering rates citing funding costs blowout for risky forms of debt as their main reason as there are more factors than the Reserve Bank that impact on credit cards interest rates, especially being that they are essentially unsecured loans with risk of default.

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