Cost Of Credit Cards Soar

The Age
16 May 2008
Tim Colebatch, Economics Editor

BANK fees on the use of credit cards have soared by up to 150% in the past five years, as fee income charged by the banks has skyrocketed more than $10 billion a year.

Figures released by the Reserve Bank show the amount the banks charge credit card customers in fees has soared in 10 years from $134 million to $1.146 billion - largely due to growing use of cards, but also due to sharp rises in fees.

In just five years to June 2007, as their profits set one record after another, the banks increased most fees on use of credit cards by between 40% and 150%, the Reserve reports.

The fee charged for processing foreign currency transactions has leapt from 1% to 2.5%. The fee for overstepping credit limits has jumped from $13 to $30.

In that time, banks have also increased interest rates on credit card debt from 16% to 19.4%.

Total bank fees paid by customers climbed 8% last year to $10.5 billion - almost three times the $3.9 billion banks charged 10 years earlier, when public anger at rising bank fees led the Reserve to monitor them.

The Reserve points out that, mostly, that has reflected growth in bank lending, not rising fees. It estimates that fee income shrunk from 1% of bank assets in 2002 to 0.7% in 2007.

When the banks raised fees steeply in the mid-90s, it was to get back the money they lost by cutting their home loan margins

But since 1997, the steepest rise after credit card fees has been in fee income from depositors. In 10 years, their fee bills quadrupled to $1.7 billion.The Australian Bankers' Association blamed the rise in credit card fees on reforms that forced them to reduce the fees charged to merchants for processing credit card sales. "The ABA, banks, Visa and MasterCard all warned that this interchange fee reduction would unavoidably lead to higher credit card fees for consumers", the ABA said.

"This year's results show a further decline of bank service fee revenue in proportion of bank assets."

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