Australia’s financial institutions and credit card companies have received a multimillion dollar interest windfall as a result of their refusal to pass the Reserve Bank’s interest rate cuts to credit card customers.
An analysis by InfoChoice revealed that approximately one year ago, the Reserve Bank lowered the cash rate by 1.25 percentage points, though interest rates on more than 65 percent of credit cards have remained the same since last year, costing the average Australian cardholder approximately $50, according to The Sydney Morning Herald.
Only 63 of 190 credit cards monitored by InfoChoice have changed their interest rates, while 14 of the cards have increased interest rates by an average 0.36 percentage points.
In the three major credit card categories, including standard credit cards, low-rate credit cards and premium credit cards from each of the four major banks, interest rates were reduced by 0.25 percentage points on average, The Sydney Morning Herald reports.
Over the last year, data from InfoChoice revealed that Australia’s four big banks had reduced interest rates for most personal loan products. Alastair Schirmer, the general manager of InfoChoice, said that consumers noticed changes in their mortgage interest rates but forgot to monitor changes in credit card interest rates.
“There are about 15 million credit card accounts in Australia, with about $49 billion in credit outstanding,” Schirmer said, adding that if the interest rate on that debt was cut down in line with Reserve Bank cuts, cardholders would be giving $1 less in interest payments to card companies and financial institutions, according to The Sydney Morning Herald.
Steve Munchenberg, the head of the Australian Bankers’ Association, said that credit card interest rates are individually set by each bank and card provider.
“Credit card interest rates are generally higher than for mortgages because it is unsecured lending and the risk of default is higher and the rate of recovery of debt is lower,” Munchenberg said, The Sydney Morning Herald reports.