Customers Do Cover Costs ... You Can Bank On It

Sydney Morning Herald

Saturday March 29, 2008

I would like to clarify several points made by Associate Professor Richard Denniss ("Wouldn't credit it, but regrettably the banks do", March 24), as some of his information is incorrect.

Millions of Australian credit card holders will be quite surprised by his comment that they are not asked to cover the higher costs that banks are experiencing and that those with large levels of credit card debt are "immune" from the rising cost of borrowing. In fact, interest rates have increased for standard credit cards and low rate cards, according to Reserve Bank data.

Regarding his comments on zero-rate cards, Associate Professor Denniss did not make it clear that the zero rate only applies for a very specific term, most often around three to six months. Once that term has been reached, the prevailing interest rate will apply. As such, it would seem unlikely that most customers who take up this offer would do so with the intent of building their level of debt.

Banks apply a detailed credit assessment of each customer before approving a credit facility. This includes applications for zero rate cards. It is neither in the interests of the customer nor the financial institution if the customer is unable to service their debt. Such responsible lending by banks is reflected in the very low arrears levels for credit cards.

Associate Professor Denniss also suggests that it is time for consumers to start repaying their credit card debt. Reserve Bank statistics, annualised, show that for almost three years credit card repayments have exceeded their level of spending. Such a strong period of repayment activity has never been seen before.

Similarly, consumers have contained their spending per card. On average over the past three years, the value of new credit card transactions has grown at about the same pace as the CPI.

Australians value the convenience and flexibility of their credit cards and the vast majority use them sensibly and responsibly.

David Bell, chief executive, Australian Bankers Association, Sydney

© 2008 Sydney Morning Herald

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