ABA defends credit card rates gap



The Australian Bankers' Association has defended the record gap between the Reserve Bank of Australia's cash rate and credit card interest rates, blaming it on increased uncertainty and volatility in financial markets.
In response to the Senate Standing Committee on Economics Inquiry into credit card interest rates, the ABA said factors such as value-added services, rewards programs, and security and fraud management now make up a larger portion of credit card product costs.
Additional layers of cost include enhanced technology such as contactless technology, and regulatory change, it said.
ABA executive director industry policy, Tony Pearson, said funds borrowed at the cash rate make up only one part of the funds pool of credit cards, and is only one of the expenses for banks in providing credit cards.
"The cost of funds as a factor in the total cost of providing credit cards is lower now than it was six years ago," Pearson said.
The submission also said funding costs made up a bit over half of overall operational costs in 2008, but this had fallen to slightly over a third in 2014.
"As a consequence, the degree to which the overall operational expenses are impacted by changes in the cost of funds, including those funds raised at the cash rate, has been reduced," it said.
The rates gap had occurred for most household lending products, including mortgages, personal loans and margin loans.
The ABA also defended itself by comparing Australia with the UK and the USA, and said Australia was similar to the other two countries and therefore was consistent with international trends.
Recommended for you
Shadforth CEO Terry Dillon has told Money Management the time is right to pursue inorganic growth as it seeks to double in size by 2030 and acquires a Melbourne advice firm.
Entireti has announced the rebranding of PFS Investment Management, bringing together the group’s investment capabilities to support its licensee network.
Licensees have been urged by ASIC to ensure their advisers’ FAR records are updated, as ASIC’s latest estimates find more than 3,000 advisers could be unable to provide advice next year.
Major licensee Count has enacted its latest M&A deal, acquiring the accounting and audit client base of a Sydney accounting firm.