Consumer advocate CHOICE has called for banks to lower interest rates on frequent flyer cards, saying many of them no longer justify having such high rates.
Rewards and travel credit cards typically come with higher interest rates and fees compared to standard credit cards, as these cards tend to offer more features, protections and rewards in the form of frequent flyer programs.
However, consumer advocate CHOICE has called for the interest rates on these cards to be lowered in the wake of COVID-19.
“While the banks’ response to customers affected by COVID-19 has been commendable to date, more work needs to be done to make credit cards fairer, especially frequent flyer cards,” CHOICE banking expert Patrick Veyret said.
Virgin Velocity credit cards in particular were named and shamed by CHOICE.
With most flights grounded and Virgin Australia itself going into voluntary administration, Virgin Velocity has placed significant restrictions on points redemption.
According to Mr Veyret, the Velocity program being essentially frozen means the value of these points and cards remains in limbo.
"It’s simply indefensible that banks continue to charge people interest rates in excess of 20% on Velocity frequent flyer cards," he said.
"While the value of the Virgin program is in jeopardy, the interest rates on these credit cards must be capped at 10%."
CHOICE lists many Virgin Velocity-linked credit cards that are not currently available for new customers, but are still available for existing customers, that charge interest rates near or in excess of 20% p.a.
These cards, seen in the infographic above, also come with high annual fees.
"There has been no relief for existing Virgin velocity credit card cardholders,” Mr Veyret said.
“Banks market their rewards programs to lure people into purchasing expensive credit cards, often using the trap of 0% balance transfers. Banks justify their exorbitant interest rates and fees by pointing to perks like access to frequent flyer programs.
"However, a recent CHOICE investigation found that many frequent flyer credit cards are simply not worth it. This is even more so now with the future of the Virgin Velocity program under question."
CHOICE's invesigation is supported by previous research.
According to a 2018 study released by the Reserve Bank of Australia (RBA), 30% of customers actually make a net loss on their credit card, and inappropriate rewards schemes are a major factor in this.
The current financial climate has resulted in CHOICE's decision to call for a 10% p.a cap on credit card interest rates.
“Velocity frequent flyer credit cards are simply the tip of the iceberg," Mr Veyret said.
"The cash rate is at an historic low of 0.25%. There is no justification for the big banks to continue charging interest rates in excess of 20%.
"Interest rates on all credit cards must be capped at 10%."
Need somewhere to store cash and earn interest? The table below features introductory savings accounts with some of the highest interest rates on the market.
More to come...
- Consumer confidence hits 11 year high as JobKeeper concerns fade
- Happy with your credit card rewards? 70% of Aussies aren't during COVID
- Property expert says to avoid 'quirky' renovations
- Guide to risk-based personal loans
- Buy now pay later vs personal loans: Which is right for you?