Interest-free promises on whitegoods leaves many in lurch
HUNDREDS of low-income Australians are falling victim to two traps when they get credit cards with interest-free periods linked to whitegoods purchases, a Senate inquiry has heard.
Addressing the inquiry into credit card interest rates, Financial Rights Legal Centre principal solicitor Catherine Lane said the legal centre had taken 26,000 calls last year from people in financial hardship.
Ms Lane said hundreds of people who contacted the centre were buying whitegoods and had been offered credit cards with an 18-month to two-year interest-free period to pay them off.
Such arrangements were a "double trap" for poorer Australians, she said, as they could be charged interest of up to 20% - sometimes backdated to the initial purchase - if they missed one payment on the debt for the whitegoods.
The second trap for those people was being given a card with a $10,000 limit despite the purchase being less than $2000, tempting them to use the card to help pay other debts or rent.
"Some people are forsaking paying their rent, mortgage or other bills to catch up, because the credit card agencies or debt collectors are on their case and they (the credit card holders) have a general fear if they don't pay they could lose their house," Ms Lane told the inquiry.
The Reserve Bank told the inquiry that Australians had a total of 16 million credit and charge accounts in the last financial year and had paid $285 billion through 2.2 billion credit card repayments in that time.
The inquiry, inspired by the Labor Party, is also looking at the huge gap between the official cash rate of 2% and credit card interest rates of up to 20%.