Credit card companies fee income rises: CANNEX
Poor planning and sloppy credit card behaviour can turn a placid no-frills credit card into a penalty fee devouring monster no-one wants to have in their wallet. Financial services research group CANNEX has revealed how even a few spending and repayment misdemeanours can make any credit card a lot more expensive than anticipated.
According to CANNEX, an interest rate of under 10% balloons out to around 22% over a year if two late payment penalties of $25 each and two over-the-limit penalties of $35 each are incurred. Many of us get caught with credit card penalties on the odd occasion but consumers who regularly incur penalty fees due to household budget pressures are building their debt.
Consumers think they are doing the responsible thing by getting a no-frills card but it can defeat the purpose if the account is not managed correctly. CANNEX urged consumers to be vigilant in their efforts to avoid penalty fees, particularly in light of the revelation that banks now earn over $1bn in fees alone from household credit operations. Total fees paid by households on credit cards rose by 13% in 2006, or four times the rate of inflation growth.
CANNEX’s database tracks over 25 different types of credit card fees. The common fees incurred, to varying degrees, are annual fees which range from zero to $1,000, one-off fees such as obtaining a secondary card, cash advances and foreign currency conversion fees.
Penalty fees with a sting include over-the-limit and late payment fees.
Only 3 of the 245 cards analysed by CANNEX do not have any penalties when you go over the limit and the maximum fee noted is $40. This is also the maximum amount for a late payment penalty, although nearly 100 of the cards analysed charge $15 or less.
According to CANNEX figures, total fee income has quadrupled between December 2001 and December 2006 yet the number of cards on the market has doubled. This indicates that Australian credit and charge card holders are being hit with higher penalties more often. The average debt by card has now risen from $1836 in December 2001 to $2931 in December 2006.
While consumers can not avoid annual fees, they can avoid penalty fees and cash advance fees.
CANNEX has released its credit card star ratings which highlight five star credit cards for the four spender types – Everyday Spender, Big Spender, Habitual Spender and Impulse Spender.
7-Jun-2007