ME calls for credit card reforms

Sally McMullen 2 March 2017

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ME has requested a new credit card reform, but do Aussie cardholders actually need one?

In light of the upcoming bank inquiry, industry and super fund-owned bank ME is calling for another reform across the credit card market. In 2016, ME submitted a report called “Credit cards: improving consumer outcomes and enhancing competition” to the Treasury’s public consultation. The submission included recommendations from the bank to make it easier for credit card customers to compare, switch, repay and avoid unnecessary costs.

This week, ME sent another letter to the members of the Standing Committee on Economics before its inquiry into Australia’s Big Four banks this and next week. In its latest submission, ME outlined five areas that it believes needs to be reformed. These are:

  1. Mandating comparison rates for credit cards to make it easier for customers to compare, as is currently done for mortgages and like they do in the UK.
  2. Requiring banks to prominently advertise credit card comparison rates alongside the headline rate in marketing materials, as is required for home loans, to make it easier for customers to compare the cost of credit cards.
  3. Making switching easier, given technology to transfer direct debits isn’t complex, to make the credit card industry more competitive.
  4. Raising the floor rate for minimum monthly repayments from 2%, given we know paying a little bit more each month can save customers handsomely.
  5. Banning proactive credit limit increase offers to reduce the number of customers getting into serious debt.

While these are all sound suggestions that could help cardholders compare their credit card options and avoid unnecessary high fees, Australians don’t have to wait for a reform to achieve many of these goals.

For example, while banks often conceal many of the fees and rates in small-print, there are plenty of resources online where Aussies can find these details explained more openly. “There are dozens of credit cards in the market which apply different fees and use different interest rate calculations, making it difficult for customers to accurately compare,” says ME CEO Jamie McPhee. While this is true, comparison sites such as finder exist to make it easy for cardholders to compare products from various banks side by side. Plus, there are separate reviews of each card so users can digest an objective overview of the card and a comprehensive list of the rates, features and fees of the card.

In April 2016, finder found that 77.13% of Australians hadn’t changed their credit card in the last five years. This means that cardholders are likely missing out on more competitive interest rates, annual fees and features, causing them to pay more for less benefit. As well as hosting up to date comparison tables and reviews, finder also frequently reports when new products are released or banks lower their annual fees and interest rates. Credit card holders can use these resources to stay up to date and gather the information they need to make a more knowledgeable comparison to find and switch the right card for them. There are also guides online that outline the steps cardholders need to switch credit cards smoothly.

In regards to minimum repayments, ME is correct in pointing out that cardholders should pay more than the usual 2% minimum repayment if they want to avoid collecting interest and accruing debt. However, while this is the minimum repayment cardholders have to pay to avoid late payment fees, cardholders can pay as much as they want each month. In fact, they’re encouraged to pay their balances in full with the promise of interest-free days as a reward. If cardholders want to pay more than the minimum repayment, they can always create auto-payments that suit their budget to ensure they’re paying as much as they can each statement period. In short, cardholders don’t need to wait for minimum repayments to increase to pay more.

Banks offering cardholders larger credit limits than they can afford to repay is a problem that’s been discussed for many years. In fact, in 2012, a credit card reform banned banks from offering cardholders uninvited limit increases. So, if cardholders don’t want to receive credit limit increases, they can contact their bank and request to opt out. Plus, you can usually include whether or not you want to receive invitations to boost your credit limit when you apply for a credit card.

So, while the requests made by ME are all fair suggestions that would benefit cardholders, there is no reason why they can’t take things into their own hands in the meantime. From using comparison sites and reviews to inform your decisions to paying more than the minimum repayment and opting out of credit limit increases, there are plenty of strategies out there that can help Aussies make smarter credit card choices.

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