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Key Findings
- Headline interest rates on credit cards and unsecured loans have been unresponsive to falling bank funding costs in recent years. This has occurred alongside a fall in the proportion of cardholders paying interest on card balances. Those cardholders that do pay interest have been left facing high rates.
- Low‑income credit card users are more likely to pay interest and tend to have higher amounts of credit card debt relative to their income. Survey evidence shows that low income households using credit cards are also more likely to be subject to fees for failing to make minimum payments.
- The credit card market is characterised by a wide diversity of product offerings, with competition most intense surrounding discounted balance transfer offers and rewards programs. Barriers to market entry are relatively low — with non‑bank providers now able to issue cards — and legislative reforms have increased consumer protections.
- Nevertheless, the major banks — as in the mortgage lending market — account for around 80 per cent of the credit card market. A measure of the effective ‘spread’ earned by credit card issuers (and on unsecured personal loans) increased sharply during the global financial crisis. While this is reflective of a general repricing of credit risk across advanced economies, spreads have remained high in the post crisis period and have increased a little more over recent years. A slight increase in non‑performing credit card loans in recent years appears unlikely to account for this increasing spread.