Fees to fall on credit cards

The decision yesterday by the Australian Competition and Consumer Commission (ACCC) to hand over reform of Australia’s Credit Card system to the Reserve Bank has surprised and perplexed Australia’s ‘big’ banks.

The ACCC has wiped its hands of the yearlong fight to get banks to come up with a cost-based system for credit card interchange fees by asking the Reserve Bank to take over. The ACCC is arguing that the interchange fee system robs consumers of approximately $600 million a year, in some cases banks are profiting 100 per cent on some credit card transactions. Interchange fees apply when a consumer buys something from a shop that deals with a bank other than the customer’s or uses another banks electronic network. The other bank passes the charge on to the consumer’s bank, which in turn passes it on to the consumer.

The ACCC believes that the RBA will be able to achieve this reform more quickly and effectively than the commission. It is hoped that the savings will be passed on to the consumer in the form of lower yearly fees and greater competition in the marketplace. There may also be substantial benefits to retailers as well with lower fees being applied.

Consumer confidence in the credit card market is falling. Its lack of transparency is a major concern. This is as a direct result of ‘still high’ credit card interest rates, fees imposed for late payments, over the limit balances etc. and a drop in some cases of interest free days. Let’s hope the involvement of the Reserve Bank and its power to dictate to the banks will loosen the stranglehold that has been in place too long.

Sydney Morning Herald, Daily Telegraph, AFR – Wednesday 21st March 2001