Reserve To Tackle Credit Card Fees
The Age
Friday April 13, 2001
The Reserve Bank yesterday announced it would use its powers to break the banks' credit card monopoly stranglehold, which is earning them about $600 million a year.
After a year of failed negotiations with the banks, the Australian Competition and Consumer Commission last month asked the Reserve to use its powers to reduce credit card interchange fees, the charges banks apply to one another for credit card transactions that are ultimately borne by consumers.
The Reserve said it would force the banks to set fees in a competitive manner by bringing the credit card schemes they operate under its regulatory umbrella.
ACCC chairman Allan Fels yesterday said the move by the Reserve could save consumers millions of dollar a year.
``This will increase and accelerate the benefits of reform to consumers and small business," Professor Fels told The Age. ``The potential gains are very large, but it will be up to the Reserve Bank to quantify them."
Following the Reserve's announcement, the ACCC abandoned a legal case against National Australia Bank for breaching the Trade Practices Act.
``This legislation works more effectively than drawn-out litigation under the Trade Practices Act," Professor Fels said.
The Reserve and the ACCC published a report in October identifying what they said were competition shortcomings in card services, which raised the cost to the community of the retail payments system.
The report said interchange fees were 39 per cent higher than the cost of providing the service, and restrictions on access to the network were unjustified. It suggested reforms could save consumers about $300 million a year.
The Reserve Bank yesterday said it had not finalised the method it would use. One option is for it to clear the way for new, non-bank credit card players such as department stores, Australia Post and Telstra. It may also impose a cap on the level of fees or introduce a regulatory framework.
Prime Minister John Howard said he strongly endorsed the move, arguing it was clearly in the interests of consumers.
``I would imagine that people will generally welcome this decision," he said. ``It reminds the Australian public that although we live in essentially a free market ... there is still a role for sensible regulation where there's a clear public interest established."
Australian Bankers Association chief executive David Bell said: ``We're very happy to work with the Reserve Bank. Banks are very happy to support any changes to the credit card system as long as they actually deliver benefits to the customers and improve on the current system, which is safe, low-cost and popular."
The ABA has warned that if the fees are cut, some smaller financial institutions, such as regional banks or building societies, may be forced to drop the service, reducing competition in the credit card market.
The ABA also wants to see the Reserve Bank using its regulatory powers on the fees associated with charge cards not issued by banks, such as American Express and Diners Club.
``If we want to see a level playing field, I think it's really important that those charge cards are included, because they're actually competing in the same territory as the credit cards," Mr Bell said.
NAB welcomed the decision by the ACC to discontinue legal action.
Ross Pinney, NAB executive general manager of specialist and emerging business, said: ``We were prepared to fight the prosecution brought against us because we believe we have not acted in any way illegally or differently from any other bank, credit union or building society in setting credit card interchange rates."
© 2001 The Age
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