Credit cards deemed €˜unfair€™ by CHOICE

Monday February 1, 2010

A recent study by CHOICE consumer group has examined the marketing techniques of many credit cards and their providers as compared to what deals actually entail and what the consumer really gets when they sign up. The consumer group tested all the major banks brands as well as smaller labels including Australian Central Credit Union, Bank of Queensland, CUA, HSBC Australia, Members Equity and Teachers Credit Union, with over 20 brands tested overall.

The credit cards providers were assessed on their interest rates systems and how they are applied when customers occasionally pay late or not in full. CHOICE found that all the big banks provided information and calculations, as well as some smaller financial institutions however, the payment and fee charging system was deemed to be ';unfair' in the consumer groups final report.

CHOICE assessed several different levels of charges and determined that:

"It's not just a card's interest rate that determines what you'll pay; the amount you're charged depends on when your card provider starts and stops charging interest and how fairly they apply interest-free periods. You could have two cards with exactly the same interest rate and use them in exactly the same way, yet one may end up charging twice as much interest as the other if you pay late. In fact, depending on your spending and repayment patterns, the difference could be much greater "- CHOICE

Basically it was the hidden details or fine print that altered an individual's monthly repayments or fees that CHOICE had the biggest issue with, with partly-paid or overdue credit card balances being the source of greatest concern from a consumer perspective.

The report stated that the biggest brands among the most unfair include Commonwealth Bank, Westpac, American Express, Bankwest and ANZ with most of the providers studied showing that they backdate their interest to the date of the purchase if a repayment is late. What this means is that if a repayment is even one day late or only paid in part, it can result in a rate of interest being charged for up to 55 days preceding.

CHOICE stated in its report that backdating on interest is especially significant for part payments with an example provided that if a customer were to underpay a $2000 bill by $10, the extra interest would still be charged on the whole $2000.

Credit cards providers that only charge interest on the shortfall include Bendigo Bank, Heritage Building Society, Teachers Credit Union and some GE cards and were deemed ';fairer credit card providers' by CHOICE.

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