Late Fees Soar On Credit Debt

The Age

Friday May 18, 2007

Chantal Rumble, Consumer Affairs Reporter and Marc Moncrief

CASH-STRAPPED Australians paid a massive 21 per cent more in penalty fees to banks last year as they struggled to manage their booming credit card debts, new Reserve Bank figures show.

The explosion in penalties comes as Australians' credit card debt jumped by almost $5 billion to $39.5 billion, or almost $2000 per person, in the 12 months to March. More than 70 per cent of that debt is not being paid off before interest kicks in.

But the banks' booming income from penalties is not due to an increase in the fees charged, the Reserve Bank said in its report, as average late-payment and over-the-limit fees at major banks rose by only $1 or $2 in the year.

Instead, it is due to more people getting into trouble with credit cards more often, consumer advocates say.

Data released by the Reserve Bank yesterday shows that in 2006 consumers paid just over $1 billion in all credit card fees - up 13 per cent from $899 million the year before.

General account and transaction fees went up by 9 per cent, roughly in line with the increase in the number of credit card accounts.

But other fees - mainly the controversial penalty fees for late payments, exceeding the credit limit or foreign currency conversion - shot up by 21 per cent.

Overall, the Reserve Bank data showed Australian households paid a record $4 billion in bank fees last year.

But the Reserve yesterday refused to break down the figures to reveal exactly how much the banks had earned from penalties on credit cards.

The release of the data yesterday comes amid increasing debate about the legality of all penalty fees.

Last month consumer watchdog Choice and the Consumer Action Law Centre wrote to the Australian Bankers Association to demand that banks, credit unions and building societies stop charging customers "unfair, excessive and probably unlawful penalty fees". They argue the fees are unlawful because they exceed cost recovery.

Consumer Action Law Centre's policy director, Nicole Rich, said disadvantaged people were most affected by the penalties, which usually range between $25 and $35, and called on the banks to be more responsible in their lending.

"The banks are making more and more money out of people who are struggling. Not only is it unfair, we question whether that's legally enforceable. But these are the people who are doing it tough and they are the least likely to be able to complain or stand up for their rights," she said.

The growth in penalty fees was a clear indication that Australians were increasingly struggling to manage their debts, she said.

Choice's general manager of policy and campaigns, Gordon Renouf, said banks faced no competition in penalty fees as consumers did not consider them when choosing a credit card, focusing instead on interest rate or up-front fees.

As a result, they could run fees up at will, he said. The average fee for exceeding a credit card's limit has grown by 400 per cent - from $6 to $30 - since 2001. In the same time fees for late payment have risen from an average $20 to $31.

A new Macquarie University report says Australian credit cards are the third cheapest among countries in the Organisation for Economic Co-operation and Development, without accounting for penalty fees.