The “lucrative” rates of credit card interest charged by the big banks have reached a record high, prompting urgent calls for reform.

Senior politicians, consumer advocates, regulators and The New Daily have all drawn attention this week to the fact that the discrepancy between average credit card rates and the falling official cash rate is now at 15.24 percentage points, according to finance data firm CANSTAR – the highest in recent memory.

A spokesman for consumer group CHOICE said the building pressure on the banks was proof the issue had reached “a tipping point”.

“It’s clear the government needs to act when it comes to banking sector competition. The Financial Systems Inquiry recommended that we have a review into competition in 2017. We think it needs to be brought forward. And the issue we’re seeing around credit cards just illustrates why it’s so important,” CHOICE spokesman Tom Godfrey told The New Daily.

“We’re at a tipping point now where you’ve got regulators, you’ve got consumer groups, community groups and parts of industry all saying that this needs to happen, so I think it’s just a matter of time before we get some real change.”

The CHOICE spokesman was referring to a string of high-profile Australians who have pointed out how unfair it is that credit card rates aren’t budging despite rate cut relief from the Reserve Bank.

Shadow Finance Minister Dr Jim Chalmers pointed out the “big gap” between credit card rates and the official cash rate in interviews with the ABC and Sky News on Thursday. He was echoing the message from his party’s leader Bill Shorten, who has demanded an explanation from the banks.

“There is no case being made by the banks for the reason why, whenever is there is a reduction in interest rates, even if they pass some of it through to mortgages and some through to depositors, you never see significant reductions in credit card interest rates,” Mr Shorten told reporters on Wednesday.

“Deposits are relatively low return, but credit card interest rates are relatively high. And it’s not good enough for the banks to ignore credit card holders, mortgagees and small businesses just in the pursuit of bigger and bigger, bloated bottom line.”

ACCC chairman Rod Sims also aired his displeasure at the “huge” and “lucrative” interest rates being charged on credit cards. He told The Guardian on Thursday the problem should be examined.

These calls for action followed reporting by The New Daily’s George Lekakis, who revealed on Wednesday that Commonwealth Bank credit card customers are bearing the brunt of the company’s bumper profits, as seen in the graphic below:

Low-income households worst hit

In 2015, a Senate committee conducted an inquiry into the difference between the RBA cash rate and credit card interest rates.

The big four – the CBA, Westpac, ANZ and NAB – account for 68 per cent of the credit card market, according to a submission to the inquiry from Westpac.

The Reserve Bank calculated for the inquiry that credit card holders who pay interest account for only 20-25 per cent of transactions, but about 65 per cent of outstanding debt. As of June 2015, there was $51.5 billion of credit card debt outstanding, with $33.1 billion accruing interest.

Low-income households are more likely to ‘revolve’ (fail to pay off the entire balance before the end of the interest-free period), and more likely to use cash advances, which carry higher rates of interest and no interest-free periods, the inquiry heard.

Why such high interest?

CANSTAR finance editor Justine Davies gave the following possible reasons for the high rates:

• Some credit card users pay off their debt each month;
• Many banks offer zero per cent balance transfer deals;
• It’s unsecured lending;
• Competition might not be very effective;
• Customers are paying for rewards and other services; and
• Customers are maybe a bit lazy at comparing rates.