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Banks have increased the interest rates paid by hundreds
of thousands of shoppers this year, despite the cost of
borrowing from the Reserve Bank falling by almost a quarter.
Banking commentators said credit card interest rates had been
slow to fall in response to drops in the Official Cash Rate.
The result is that many shoppers will head into Christmas
paying more on their unpaid balances than last year.
Three of the big banks - BNZ, ANZ-National and Westpac -
raised credit card interest rates by 1% or more this year,
citing the high cost of borrowing.
Since those rises, the Reserve Bank has lowered the Official
Cash Rate from 8.25% in June to 6.5% - leading to lower
mortgage rates but no fall in credit card interest rates.
Banks spoken to said the Official Cash Rate was just one part
of credit card costs.
Credit card debt was much riskier than mortgage lending
because it was unsecured, and the extra risk - which could be
greater in tough economic times - was built into interest
rates.
David Tripe, director of the Centre for Banking Studies at
Massey University, said credit cards cost more to administer
than home loans because they were made up of a large number
of small amounts.
But he said it "wouldn't be unreasonable" to conclude that
banks had been slow to drop their rates.
Andrew Campbell, of bank workers' union Finsec, said banks
had done too little to explain why credit card rates remained
above 20%.
He said more and more people relied on credit cards to pay
for basic household expenses. Many of those people -
particularly lower income earners - were struggling to pay
the money back.
A survey by credit reporting agency Dun and Bradstreet last
month found one in four New Zealanders expected to have to
use their credit cards to cover purchases they otherwise
could not afford before the end of summer.
A spokesman for Westpac said its annual report showed a rise
in overdue credit card payments.
The risk of default, credit card fraud, and high overseas
borrowing costs all added to the cost of providing the
service.
BNZ general manager of strategy and marketing Blair Vernon
said an easing in the 90-day bank bill rate would eventually
flow through to credit card rates.
But in the short term, banks' funding costs would stay high.
Mr Tripe said there was little incentive for banks to move
quickly on interest rates because about half of the two
million New Zealanders with credits cards did not care about
interest rates.
Those people paid their balances (or intended to pay them) at
the end of each month. People who could not pay their
balances were often higher risk borrowers who would find it
difficult to switch banks to get a cheaper rate.
Mr Campbell said said it was time to rethink sales targets
that required bank staff to push credit cards heavily on to
customers, because if banks had tighter lending criteria they
would not need to price so much risk into interest rates.
However, banks said the credit card market was competitive,
and their rates were constantly under review.
Customers could often get lower rates temporarily under a
deal to switch banks.
Rising rates
Increases to standard credit card rates for retail purchases:
ANZ
February up from 20.95% to 21.95%.
July up from 21.95% to 22.20%.
BNZ
March from 20.95% to 21.95%.
July 21.95% to 22.20%.
National Bank
March 20.95% to 21.95%.
May 21.95% to 22.20%.
Westpac
February 20.95% to 21.90%.
ASB
Unchanged at 20.95%
Kiwbank
Unchanged at 15.90% or 16.90% for a gold
card.
