Australians are paying the penalty for being financially responsible as banks keep credit card rates high to compensate for a big increase in the number of customers paying their full balances.
A Senate inquiry in Sydney heard on Friday that the banks have failed to pass along cuts to the RBA's cash rate partly due to the fact that they are no longer able to charge interest on as many credit card accounts.
Westpac commercial and business bank chief executive David Lindberg told the Economics References Committee that interest-free balances had grown by 45 per cent in the last three years.
"More customers are spending more and paying off their cards in full in the month. This means that banks are funding higher balances that are in the interest free period," Mr Lindberg said.
"In industry speak, the revolve rate has declined."
This form of card use, driven in part by customers earning rewards such as airline points, is among the reasons the banks had failed to pass along Reserve Bank rate cuts.
Mr Lindberg said the other factors were that more balances are now held on low rate cards, while low- or zero-rate balance transfers from rival cards were now industry standard.
That has left those unable, or unwilling, to pay off their cards to pick up the tab.
Committee chair Senator Sam Dastyari said credit card interest rate rises by Commonwealth Bank, Westpac, ANZ and National Australia Bank exceeded RBA hikes by 12 per cent, while just 56 per cent of central bank rate cuts were passed on.
Consumer rights lobby Choice says the big four's rates on low-interest cards have moved by less than one per cent over five years, with most increasing from 2013. The RBA cash rate dropped by 2.75 per cent over the same period.
NAB product and markets group executive Antony Cahill acknowledged that many factors affected rates, with cash representing just 22 per cent of the cost of a card.
Commonwealth Bank head of retail banking services Matthew Comyn agreed when Senator Sean Edwards asked if his bank responded to higher unemployment with higher rates.
"That's a reasonable characterisation ... with every interest rate decision, we consider a range of factors," Mr Comyn said.
Mr Comyn said CBA did not offer zero-rate balance transfers and wanted to see them banned.
NAB's Mr Cahill suggested that was an "interesting" proposal given that CBA is already the market leader, and therefore in less need of attracting new customers.
Senator Edwards did strike a positive note when he said it was "refreshing" to hear Westpac recommend the committee go further than its current suggestion of increasing minimum monthly payments to help prevent spiralling balances.
Mr Lindberg said long-term debt could be parlayed into a loan to allow faster repayment, while all issuers should provide an option for customers to pay off their debt within a set period such as one, three or five years.
