Households Bear Brunt Of Bank Fees
The Age
Friday May 19, 2006
THE burden of rising bank fees is increasingly being shouldered by households rather than businesses, with revenue from credit card fees alone up 112 per cent in the past three years.
Shrinking lending margins and lower business charges for card transactions appear to have forced the banks to rely more heavily on consumer fees to keep their profits booming.A report from the Reserve Bank revealed income from bank fees leapt 48 per cent over the five years to 2005 to a record $9.2 billion.Households, staggering under record debt, last year accounted for 40 per cent of the banks' total fee revenue. Just four years earlier, households were carrying 32 per cent of the fee burden, with businesses picking up the remaining 68 per cent.Credit card users appear to have been stung with a disproportionate chunk of the increase. The Reserve said earnings from credit card fees had been rising at an annual average of 29 per cent since 2002. Last year, the banks earned a record $899 million from credit card charges, 18 per cent more than the previous year and more than double the $425 million in 2002.In contrast, earnings from business fees and charges have risen at a much more modest pace, particularly since the Reserve introduced reforms to the credit card merchant payments system in October 2003. Last year, revenue from business fees rose by just 2 per cent, after a 1 per cent fall in 2004.Other figures from the Reserve showed consumers had clocked up a record $25.3 billion worth of credit card debt accruing interest by the end of March, 17 per cent more than a year earlier. Over the year, the number of credit card accounts rose by 8 per cent to almost 12.8 million."Increases in the number and usage of credit cards and, perhaps, the incurrence of penalty fees also supported growth in credit card fee income in 2005," the Reserve said.The report follows a warning from Reserve assistant governor Philip Lowe this week that most credit card reward schemes were confusing and made little financial sense for most people.Dr Lowe said most people did not spend enough to benefit from the rewards on offer, but still ended up paying higher annual fees to participate.A report by banking expert Kim Hawtrey from Macquarie University yesterday said the increase in banking fees could be attributed entirely to a sharp rise in the number of transactions, with the average cost per transaction down by around 18.5 per cent over the past five years thanks to a growing reliance on low-cost banking.The report was commissioned by the Australian Bankers' Association.But the good news is that fierce competition in the home lending market resulted in a sharp reduction in lending margins. On average, home loan rates are now just 1.8 percentage points higher than the Reserve's official interest rate, compared to 4.25 in the early 1990s.
© 2006 The Age
