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Tougher rules ... Financial guru David Koch has appeared before a Senate inquiry into credit cards. Picture: Toby Zerna Source: News Corp Australia
THE dark lords of finance have built a $50 billion Debt Star with a “Jedi mind trick†that’s made customers believe it is normal to take 30 years to repay a credit card, a leading consumer counsellor told a Senate inquiry.
The Reserve Bank of Australia then said it is worth considering a tightening of the test for issuing plastic to include whether the customer can repay the upper borrowing limit in a time frame others have suggested should be as short as three years.
And the Australian Securities and Investments Commission revealed to the hearing that it has at least one card provider under investigation for irresponsible lending.
Plastic debt is the most common problem among clients of the Financial Rights Legal Centre, its principal solicitor Kat Lane said. Those who ask for help are typically paying interest rates of as much as 30 per cent, she said.
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Dark side of plastic ... Aussies have been ‘tricked’ into believing it’s OK to take decades to repay credit card debt. Picture: Supplied Source: Supplied
Banks “have Jedi mind-tricked us into thinking credit-card debt is long-term,†the FRLC’s Ms Lane said. Their interest rates were uncompetitive and responsible lending regulations imposed on card issuers had failed to protect consumers.
RBA Assistant Governor for the financial system Malcolm Edey told the inquiry there may be a “need for stronger risk assessment requirements for credit-card lendingâ€. That could require an expansion of regulators’ powers, he said.
“The credit-card business for banks is highly profitable,†Dr Edey said. It delivers revenue of about $8.5 billion a year due to “net interest margins in double figures even after credit lossesâ€.
RBA head of payments policy Tony Richards said “competition is playing out to give you funny outcomesâ€. It wasn’t focused on interest rates, but on rewards and other card features, Dr Richards said.
It was put to the FRLC’s Ms Lane that banks should be able to offer cards as they see fit.
“The free market argument just doesn’t cut it these days,†she said. “That is not how we do consumer protection in this country.â€
The inquiry, led by Labor’s Sam Dastyari and the Liberals Sean Edwards, is investigating credit card interest rates and fees. Card rates have been rising despite the official RBA cash rate falling to a record low.