By Tracy Sorensen
When the financial bubble burst for the Laurie Connells, Alan Bonds and Christopher Skases in the late '80s, losing their lenders spectacular sums, the banks turned on the poor to extract some compensation. Those with bank accounts that never went above a couple of hundred dollars, for example, were hit with monthly fees for the hassle of having to administer such piddling amounts.
Now, it appears credit card holders are about to lose out. With interest rates down to their lowest point in years, public pressure is on for some relief from rates which now stand at up to 23%. The banks have held out against this pressure, and public outrage is building up.
But consumers may find any eventual drop in rates extracted from the banks soaked up — or even overcompensated for — through the introduction of an up-front yearly "service fee" (expected to be about $30, or the equivalent of a 20% interest rate on a permanent $150 overdraft).
Thus, while the National Australia Bank announced a credit card interest drop of 2% on May 8, the Commonwealth announced it would be holding its credit card rates steady "pending clarification of arrangements to permit banks to charge a credit card service fee".
The banks have long complained that the plastic they dished out so willingly in the spending spree of the mid-'80s is not as profitable as they'd like because many people pay off their debts during the interest free period (of up to 55 days), and because of bad debts.
But critics point out that sales outlets — the department stores and service stations — are already charged a service fee by the banks. Secondly, it is from those who get themselves caught in a spiral of accumulating debt that the real profits on credit cards are made: it is a little unfair to complain about those who do happen to bomb out completely.
Meanwhile, there is no guarantee that the banks will significantly drop interest rates on credit cards, even if they do get permission to charge a service fee. If the rates go down, there is no guarantee they will stay down, because the banks are "self-regulating".
And it will be interesting to watch whether the major banks will offer different service fees and varied rates. Their monopoly-type behaviour in the "deregulated" banking market suggests that they could all opt for the same service fee and the same interest rate.