In the lead up to the next bank inquiry, industry super fund-owned bank ME is recommending reforms to the credit card market.
The reforms – which ME first recommended in a submission in 2016 to Treasury’s public consultation, ‘Credit cards: improving consumer outcomes and enhancing competition’ – are designed to make it easier for customers to compare, switch, repay, and avoid unnecessary costs.
In a letter to members of the Standing Committee on Economics, which is inquiring into and reporting on a review of Australia's four major banks this and next week, ME again highlighted the five areas it believes should be reformed.
1. Mandating comparison rates for credit cards to make it easier for customers to compare, as is currently done for mortgages and like they do in the UK.
2. Requiring banks to prominently advertise credit card comparison rates alongside the headline rate in marketing materials, as is required for home loans, to make it easier for customers to compare the cost of credit cards.
3. Making switching easier, given technology to transfer direct debits isn’t complex, to make the credit card industry more competitive.
4. Raising the floor rate for minimum monthly repayments from 2%, given we know paying a little bit more each month can save customers handsomely.
5. Banning proactive credit limit increase offers to reduce the number of customers getting into serious debt.
ME CEO, Jamie McPhee, said that while credit cards are a modern convenience, offers have become too confusing and standardisation is required.
“There are dozens of credit cards in the market which apply different fees and use different interest rate calculations, making it difficult for customers to accurately compare.
“Banning credit limit increase offers and increasing minimum monthly repayments would reduce the number of customers that get into serious debt.
“Improving competition by making switching easier would motivate banks to make better offers to customers, helping to drive down rates.”
ME’s frank credit card has no annual-fee, a low-rate of 9.99% for members of industry super funds and unions or 11.99% for non-members, and the same low rate on purchases and cash advances.