The Reserve Bank's latest quarterly snapshot of how Australians spend marked a milestone. For the first time, the number of credit and debit card payments eclipsed the use of cash on transactions under $10,000.
Given this trend and the fact that there are almost 17 million credit card accounts active in Australia today, it's clear why this is an increasingly profitable space for banks. You would think our banks and the government would have fairness for these card holders near the top of their priorities. Think again.
The Australian Bankers' Association recently dropped its response to the review of the banking code of practice: what the association calls its "customer charter". By title, the response might seem dull but, in reality, it could have large ramifications for your hip pocket.
The review was one of the six promises banks made in April last year to "strengthen community trust" and "protect consumer interests" – and to fend off Labor's call for a royal commission into the sector.
The banks appointed respected governance adviser Phil Khoury to look at their customer charter and, after seven months of hard work, he came up with 99 recommendations, which the association has now responded to.
If you only read the association's media release, you would think its response was the panacea to all the banks' problems. But the devil is in the detail. On credit cards, the banks refused to commit to some of the most important changes that could save you money.
The most glaring example is how banks calculate credit card interest charges, which seems complicated by design.
Australians pay a whopping $5.5 billion in these interest payments a year and, while it is reasonable to expect that late payments would attract a penalty, banks use several tactics that often mean you lose out while they rake in the cash.
Most Australians expect that, if you spend $1000 on your credit card for the billing period, and you pay back $800 by the due date, you should only need to pay interest on the $200. That seems reasonable, because that's the amount that's overdue. But often that's not what happens. What many customers don't know is that, when they don't repay the full amount on time, many banks charge interest on the whole $1000, even though the $800 was paid on time.
Banks even backdate interest to the dates of the original transactions, instead of charging interest from the due date. With credit card interest rates as high as they are, this can eventually add up to huge amounts.
Consumer group Choice says the ways banks calculate credit card interest is "mind-bending". The banks' own reviewer found "few customers would be aware that this was happening at all". Khoury said charging interest on purchases that were fully paid off on time "must be prohibited" and told the banks the practice was "unacceptable", "substantively unfair", and would be seen as "just plain tricky". It's hard to think of stronger criticisms, but the banks ignored him.
The banks also want to continue making unsolicited offers to increase credit card limits. You may be quite happy with your current credit limit but that doesn't stop banks from offering an increase out of the blue, with a slick marketing pitch and often to a level that makes you think "wow, that's a lot of zeros".
There's a gap in the law that allows banks to send these offers as long as you've clicked a box when you first apply for your credit card. The banks' reviewer agreed it would show more respect to customers to make credit card limits less about marketing and more about what the customer decides to ask for. If customers decide they want to be able to borrow more on their card, they can always go to the bank and ask for an increase.
Finally, banks make it very easy to apply for credit cards online, but they're often harder to cancel. This means that, if you see a card that's a better deal, it's an effort to move over, or you end up hanging on to your old card, too. Meanwhile, as long as you still have the old card, you can continue to accrue steep annual fees, sometimes hundreds of dollars.
Although the banks said they supported making it easier to cancel cards, and some banks said they'll act, the banks' association refuses to clearly commit its members to simple, online cancellation of credit cards. The arguments for allowing online cancellation are pretty straightforward. In 2017, why should you need to go into a branch or call up and suffer through the hard sell?
The banks' failure to make these three changes, which would anyone with one of their credit cards, is a missed opportunity. But these issues aren't new. We've known about a lack of competition and consumer protections with credit cards since at least December 2015, when a Labor-led Senate inquiry recommended a clean-up.
Then, almost a year ago, the government finally accepted that change must happen and said it would table draft legislation "in the near term" that outlawed tricky interest charges, banned unsolicited credit increase offers and required banks to allow for online cancellation. Since then, we've seen nothing from Malcolm Turnbull or his minister.
Given banks have decided not to act on these important changes, the government must now take responsibility, deliver on its promises and protect Australians from unfair fees and charges. Credit card fees and charges have been very lucrative for the banks. It's well past time this highly profitable industry gave credit card customers a fair go.
Katy Gallagher is the federal shadow minister for small business and financial services and a senator for the ACT.