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.
AUTHOR
Malavika Santhebennur
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