There appeared to be no support among consumers for the banks to impose credit card annual fees, Consumer Affairs Minister Yvonne Henderson said today.
Mrs Henderson has told the Prices Surveillance Authority that until the banks agreed to co-operate with governments by providing data on the true profitability of credit cards, no changes should be contemplated.
Mrs Henderson was making a submission to the PSA's inquiry into credit card interest rates. She said little or no evidence had been provided by the banks to support their claim that the cards were non-profitable.
High interest rates on credit cards had been maintained despite major reductions in interest rates in all other areas of credit, and the providers' claims had been met with incredulity in the consumer credit sector.
"Until objective factual data is available, there can be no doubt that the providers' claims are regarded in the community with considerable scepticism," Mrs Henderson said.
The Minister convened a meeting of financial counsellors before making her submissions to hear their concerns on the credit card issue.
"Financial counselling and legal services to credit consumers identify a range of actions which in their experience contradicted provider claims of non-profitability of credit cards," she said.
Mrs Henderson said:
· Banks would not make small personal loans to low-income borrowers - on the grounds of economy - but would issue them with credit cards.
· Banks preferred small loans to be added to credit card debt.
· Banks promoted credit cards as a means of avoiding savings account fees.
· Credit cards were aggressively (and presumably expensively) marketed, particularly to young people; banks claimed that this marketing aimed to create brand loyalty.
The banks claimed that up to 60 per cent of customers paid the credit card debt in full within the interest-free period, and that those who did not, usually those on lower incomes, subsidised the better-off.
"The financial counselling sector questions providers' claims. The experience of this sector is that the figure is likely to be around 30 per cent," Mrs Henderson said.
"Providers are presently claiming the need for an annual fee on credit cards to improve their profitability. There has been widespread community criticism of the proposal.
"The Standing Committee of Consumer Affairs Ministers has responded with the requirement that any such fee be met by a reduction in interest rates sufficient to offset the cost to consumers of an annual fee, and have requested evidence to support the banks' position.
"This information has not been provided to the SCOCAM and it is to be hoped that the PSA's Inquiry will receive the full co-operation of providers in this respect.
"Consumers who pay their debt in full within the interest-free period view the proposal as a penalty, despite their having conformed to 'the rules' of many years' standing, and those who regularly incur interest charges believe these are more than sufficient to pay for credit.
"Overall the proposal is seen as an unfair and unjustified cost to consumers.
"The community sector requests statutory control on fees and levels, and the establishment of a link between credit card interest rates and other market interest rate indicators."
