Kiwis appear stuck with high credit card interest rates despite Aussie crack-down, with the Commerce Commission leaving them to market forces

New Zealand regulators are continuing to turn a blind eye to our high credit card interest rates, despite the Reserve Bank of Australia (RBA) cracking down on the issue. 

Even though New Zealand credit card interest rates are as high, if not higher, than Australian ones, the Commerce Commission - which oversees consumer credit laws - says it has no mandate to follow the RBA's lead.

The RBA has pulled banks up for gouging millions of dollars from credit card holders, in its submission to a Senate inquiry into credit card interest rates.

It asserts that even though it’s become cheaper for banks to fund themselves since the global financial crisis, they’re upping their credit card interest rates.

So not only are they not passing RBA cash rate cuts onto their credit card holders, but they’re charging them more.

The same thing is happening in New Zealand, but our regulators aren't doing anything about it.

OCR down, interest rates up

Credit card interest rates here have not fallen as much as they might have against the backdrop of the Official Cash Rate (OCR) falling to 3.00% now from a peak of 8.25% in 2008. 

As displayed in the table below, standard credit card purchase rates sat at around 22% in 2008, and dropped to just under 20% between 2009 and 2014 when the OCR was between 2.50% and 3.50%.

Just this year, credit card interest rates have been inching higher, up a percentage point to just under 21%, despite the OCR falling 50 basis points and being expected to continue its downward trend.

 

Aug 08

Aug 09

Aug 10

Aug 11

Aug 12

Aug 13

Aug 14

Aug 15

Purchase Rate (%)

ANZ

MasterCard

Standard

22.20

19.95

20.95

Low Rate

14.90

13.90

ASB

MasterCard/ Visa

Standard

22.20

19.95

19.45

19.95

20.95

Low Rate

12.50

12.00

19.95

13.60

13.50

BNZ

Visa

Classic FlyBuys

22.20

19.95

20.95

Lite

13.75

13.25

13.50

13.90

Westpac

MasterCard

Standard

21.90

19.95

20.95

Low Interest

14.85

12.95

12.99

12.95

13.45

OCR

8.00%

2.50%

3.00%

2.50%

2.50%

2.50%

3.50%

3.00%

 
Our credit card interest rates are also higher across the board than in Australia.

While we’re paying just under 21% for the standard cards listed above, Australians are paying just under 20% for similar cards.

Our cash advance rates (the rates we pay when we draw money using our credit cards) are also generally over a percentage point higher than in Australia, at just under 23%.

NZ regulators: Let the free market’s 'invisible hand' do its thing

The RBA’s Payments System Board will finalise new rules governing credit card fees in the Australian market in coming months. These are expected to see credit card fees lowered.

However the RBNZ can’t follow suit, as it operate under a different mandate to the RBA.

It says: “The Reserve Bank of New Zealand regulates banks, insurers, and non-bank deposit takers (NBDTs) at a systemic level - i.e. to make sure the financial system remains sound. 

“We don’t regulate from an individual customer protection perspective and don’t have comment to offer about pricing of products and services offered by banks, insurers and NBDTs. 

“The way that banks, insurers, NBDTs (and indeed all other businesses) in New Zealand interact with customers (including pricing) is governed by well-established consumer protection laws. 

“Other than a small handful of price-regulated industries (wholesale prices for electricity transmission and some telecommunications are well known examples), businesses are quite within their rights to set prices, fees, charges etc within the competitive market in which they operate – and consumers are free to shop around for the best deal.”

As for the Commerce Commission, a spokesman says: “There are no restrictions on interest rates so constraint is provided by the competitive market. It’s not an issue we would investigate unless evidence emerged of collusion between banks to set rates at a certain level.”  

Labour calls for government to step in

Against this backdrop Labour’s consumer affairs spokesman David Shearer is calling for the Government to step in and demand a better deal from the Australian banking giants.

He accuses the Australian banks of “creaming” Kiwis, as they make higher profit margins here than they do across the ditch.  

“They are some of the most profitable banks in the Western world, generating a return here of 1.6 per cent pre-tax profit as a percentage of total assets last year, compared with Australia’s 1.28 per cent. (The US was 1.1 per cent and the UK 0.39 per cent)” Shearer says.

“New Zealanders delivered them a net profit after tax of $4.4 billion last year – a giant step up from $3.6 billion the year before.”

Bankers: Changes to NZ regulatory framework driven by customer demand 

The chief executive of bank lobby group the Bankers’ Association, Kirk Hope, says "New Zealand banks operate in a different market and regulatory framework compared to their Australian counterparts. Any changes in New Zealand are more likely to be driven by customer demand.

"Our banks are very responsive to consumer concerns and that’s reflected in their high customer satisfaction ratings. 92% of bank customers are satisfied with their bank, according to Consumer NZ."

Hope says credit card interest rates are higher than mortgage rates, because the lending is unsecured, so is risker.  

“It's important to note there's a range of credit card options available to meet a variety of customer needs. Many people pay no interest on their credit cards, or they have a low interest credit card. Often they go for the higher interest product because of the loyalty offerings and because they pay the card in full before the interest-free period ends" he says.

“Banks also offer very competitive deals to attract new customers. Incentives to switch often include extended interest-free and low interest periods for the transferred balance from an existing credit card.

Furthermore, Hope says New Zealanders seem better informed about credit cards and how to manage them.

“In New Zealand over half of credit customers pay off their balance in full in the interest-free period, compared to only a third in Australia and the US.

“Only between 1% and 3% of New Zealand credit card customers pay the minimum each month. This figure is significantly lower than in the US and UK, where as many as 13% to 14% make the minimum repayment each month.

"As we can see, New Zealanders’ credit card behaviour is different from that in Australia and other countries. What may be an issue there may not be a concern here.

“Another point to note is that there are low barriers of entry to the New Zealand payments market, which keeps it very competitive.” 

      New Zealand
as at August 20, 2015 Annual Cash Adv Purchase
      Fee $NZ % %
           
ANZ MasterCard Standard 30.00 22.95 20.95
    Low Rate 58.00 22.95 13.90
           
ASB Visa Standard 24.00 22.95 20.95
    Low Rate 40.00 22.95 13.50
           
BNZ Visa Classic FlyBuys 30.00 22.95 20.95
    Lite 60.00 22.95 13.90
           
Westpac MasterCard Standard 44.00 22.95 20.95
    Low Interest 65.00 22.95 13.45

 

      Australia
as at August 20, 2015 Annual Cash Adv Purchase
      Fee $A % %
           
ANZ MasterCard First 30.00 21.49 19.74
    Low Rate 26.00 15.64 15.64
           
CBA MasterCard Awards 59.00 21.24 20.24
      59.00 21.24 13.49
           
NAB Visa FlyBuys Rewards 95.00 21.74 19.99
    Low Rate 59.00 21.74 13.99
           
Westpac MasterCard 55 Day 30.00 21.29 19.84
    Low Interest 59.00 21.49 13.49

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27 Comments

But why discount the rate, the best way is not to use the service.

Credit/debit card is a simple way of buying something you can't afford now.

If you save up the money you avoid the interest trap.

If you don't have the money and want it now you will pay more.

Try using an EFTPOS card for overseas transactions.

Its called a debit card, supplied by Visa or MasterCard via the banks and works of your savings or chq account, has all the functionality of a credit card except the credit part.

So don't use credit cards, or pay them off before they incur interest
Unfortunately the profits are being extracted from those too poor to pay in time, or the dumb, or forgetful

Bottom line, our Government (through the RBNZ) doesn't have the balls to put an effective leash on big money! It also says that last year the banks profits was $4.4 billion. Does anyone know how much tax was paid by them, or is it too sensitive a question?

Our Government is looking at taxing internet buying to gain $180 mil., but how much are they foregoing by allowing banks to export their profits?

Murray - I'm totally confused by your post. Do you know how much tax they pay or you just making aspersions without bother to check facts ?. And how is the Govt foregoing tax by "permitting" the banks to pay their shareholders, most of whom are overseas, and who provide equity to the NZ banking system that funds 80% the country, something that NZ savers don't have even the slightest capacity to do ?

No complaints from us who have the cards for convenience, use them all the time and pay them off in full to avoid paying any interest at all. Pay for significant items online or with a flick of the wrist, It saves having to carry cash around.
Just one golden rule: Don't spend money you do not already have.

Anybody paying interest at credit card rates demonstrates they don't care to look after themselves. If so why should we are have to look after them.

It's about financial literacy, which many people don't have. There's no need to be callous towards those less fortunate.

Yes that was my point Value. It might be about literacy and lack of it, but the usual refrain then is 'education'. Trouble is that education only sticks if people care to manage their life.

How are banks "gouging" customers for millions?

Did these people not enter into contracts clearly spelling out the systems used, and binding on both parties?

The contracts are freely terminate-able by paying off the debt and closing the account; there are no "gouge-backs" for previous balances.

Any hikes in rates are not ridiculous ( >10% ) on demand.
nor are fees self-triggering (penalties from bank applying penalties)

you should get a job in the big 4 banks Cowboy, marketing and promotion

Hey it's a contract. It's entirely opt-in. don't like the rate....don't sign up.

Do you really think so ...cowboy...? eg... do u really think 20% interest rates for credit cards show competition and market forces at work..??

gouging is a word I'd probably use...

Perfectly fine...after all I have two, so my feet have voted.

As long as there is no coercion or force then the market has indeed spoken.

Those who think it's gouging and too much, simple don't fill out the application, don't sign the back, don't use the card.

I would say since the service is so widely adopted that clearly many people have signed a contract saying they accept the consequences... they _are_ sentient beings, capable of independent thought and considered action are they not?

Exactly, especially since they are revolving credit facilities. The bank's don't need to pay out a share of interest payments to depositors on their customer's credit card balance. Worst case it will reflect poorly on their reputation for their ability to manage their day to day clearance balance if a credit card customers repayments slow or cease altogther. This is more likely to happen at punitive interest rates, which have forced many a credit card holder to declare bankruptcy. A bankrupt isn't exactly in a position to pay their credit card balance, are they?

http://www.globalresearch.ca/usurious-returns-on-phantom-money-the-credi...

And yes, back in the past I did report my bank to the Banking Ombudsman for doing automatic credit increases/sending out unrequested increases (without servicing or reason) - as those were practices which "pushed" people towards trouble.

If the people go to the market seeking trouble, that is their sapient right.

You mean a market dominated by State created banking cartels. Funny how State created monopolies aren't tolerated by neoliberal drones, in economic sectors where State control of the industry would actually be beneficial to the public at large, but its considered essential in an industry, designed explicitly to fleece the public and enrich the privileged few.

The market domination is an issue. but a separate issue.

No its not. Economic relationships are defined by power dynamics, particularly credit/debt ones. Having State conferred market dominance tips the balance of power in the favour of the creditors, who is thereby able to set the rules in their favour. The customer/debtor has no choice but to abide by them for wont of any other meaningful option.

when it comes to cause and effect, they are different.

As such "when power and money meet, it is the power that walks away richer".
At the moment we're having difficulties because King Phillip IV is deeply in debt and hasn't learnt from history ... opps I mean NZ government is deeply in debt and hasn't learnt from history. Power after all, coming from the barrel of a bank account.

Like the credit card holders the government thinks it can't go bankrupt. That things are more important than money, and the banks are happy to _lend_ money to their borrowers who have the assumption. That's why all those hungry people are in the world, too much money, not enough to buy; that's why white guilty is esponged with charity dinners and 40 hr famines and silly Internet games. If only those people had State's to save them....

What is happening with globalisation and bank dominance is soon the banks will be able to favour entire countries over other supply countries.

but as Hafar said to Ulbriad... who needs irrigation for the farms to grow.

Let the population grow and grow and grow, immigration is good for everyone - provided Baal the King is pleased - for you shall be permitted on the roads you made and paid for. you shall be permitted to buy electricity from the assets we sold that you paid to build - no you must not have private electricity generation, it is unclean. You shall not grow your own food, in your cage under artifical lights. You shall drink the water with the fluroxatine additives and remain calm or we shall have you beaten and your lifes work taken from you.

Credit cards are great, its all about the way you use it. Simple really you need to pay it off every month. The true rewards points I get enables me to pay pretty much all of the $20 a month mobile phone bill as a bonus. If you cannot handle a credit card then get a debit card for offshore transactions. The reason the interest rates on it are high has nothing to do with interest rates in other market sectors, its because its very high risk lending as far as banks are concerned and people default on it all the time. Too may stupid people out there, time to take individual responsibility, it you cannot afford to pay for it don't buy it.

Yes, just the same as asking people to stop eating sugar I suppose? When bank increase your credit card limit from $1,000 to $10,000 without you asking they should clearly accept the consequences as you say, "they _are_ sentient beings, capable of independent thought and considered action are they not? "

Don't know about you but my ASB Visa lets me set my own limit from $500 to like $10,000 just using the mouse on a slider. Its instant but then I have a great credit history and have never defaulted on anything. Why should the bank accept the responsibility for your stupidity ? Whats wrong with people these days ? are they brain dead ? are they so bad a math that they cannot balance their own finances ? you cannot SPEND more than you can afford to pay back, which is typically closely linked to how much you EARN.

Some are obviously not as clever as you Carlos, my point is if you offer credit to someone not in a position to pay back your loan, and then charge over 20% interest if they fall behind in repayments...loan should have never been offered or allowed to be accepted without strict controls on both parties.

" A few years ago, my daughter entered the workforce in a relatively modestly paid job.
She applied for and got a credit card with a limit of $500 and within a year or so she excitedly told me the bank had sent her an unsolicited letter increasing her amount to $10,000."
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1150...

yes, and I have a friend who spend his "$10,000 windfall" on hookers in a weekend. So some parts in the economy are definitely paying well, although I am concerned that gender equality in wages aren't being maintained.

If your daughter is over the age of majority, why should the bank not use direct advertising, I get crap from all sorts of stores in my mailbox, doesn't mean I have to buy everything. Why would I buy a $10k loan? Are you perhaps saying our educators and parents are failing, in that our children aren't being taught, or taught hard enough, the important things about money, contracts, and loans?

If I had a dollar for every time someone said "just pay it off every month" I'd have enough to pay off my credit card.