The Prices Surveillance Authority has caught three of the big four banks out. They have subtly changed the way they charge interest on credit cards. In doing so they have picked up an extra percentage point of earnings _ in effect a price rise of about 14 per cent on the price of using money. Immediately after deregulation of credit cards in 1993, competition brought a slight overall reduction in charges. It also brought a degree of choice. More recently, though, choice has meant confusion. As customers faced a choice between apples and pears it became impossible for many to see the real differences in outcomes. The banks appear to have taken advantage of this will subtle changes that have dragged the overall cost of credit up not down. Only the Commonwealth comes out as not having changed the ground rules on interest charging. The National, ANZ and Westpac have changed their rules. All have stated they have informed customers, and that is no doubt true. None the less, until the comparative detail and final result was published this week by the Price Surveillance Authority, very few customers would have been aware of the changes.
Few would have been aware which banks give the best deal. The changes to charging are so subtle as to be devious. Before deregulation, all bank credit cards had to give an interest-free period after which interest could only be charged on the outstanding balance. Banks had to give an interest-free period on new purchases even if the account had not been fully paid. Banks were not allowed to charge an annual fee. Upon deregulation, the banks painted an overall impression of saying to customers: if you want the interest free period you have to pay an annual fee. If you want to escape the annual fee you must pay interest on all purchases from the date of purchase. That impression was created because that was where the emphasis lay in publicity to entice new customers and in information to existing customers. The deviously subtle others changes were noted in the fine print.
Those changes include annulling the interest-free period if the account is not paid in full. National, ANZ and Westpac variously annul all or part of the interest-free period from the date of the purchase for: the full purchase price, for the outstanding balance and/or for subsequent purchases. Yes, it sounds complex. That is because it is meant to be so that consumers are fooled. Only the Commonwealth adheres to what most consumers understand should happen: that the interest-free period applies to (ital) all (end ital) purchases and credit charges apply only to the unpaid outstanding balance. Shame on the other three banks.