High-interest nightmare starts as no-frills credit

media release

30 May 2007

FOR IMMEDIATE RELEASE

High-interest nightmare starts as no-frills credit card

CANNEX releases credit card star ratings report today.

Poor planning and sloppy credit card behaviour can turn a normally placid no-frills credit card into a penaltyfee devouring monster no-one wants to have in their wallet.

Financial services research group CANNEX has revealed how even a few spending and repayment misdemeanours can make any credit card a lot more expensive than anticipated.

“The annualised cost of operating a credit card at 17.90% quickly balloons out to around 27.90% over a year if two late payment penalties of $25 each and two over-the-limit penalties of $25 each are incurred,” CANNEX financial analyst Harry Senlitonga said. “Most of us get caught with credit card penalties on the odd occasion but consumers who regularly incur penalty fees due to household budget pressures are building their debt."

“Consumers think they are doing the responsible thing by getting a no-frills card but it can defeat the purpose entirely if the account is not managed correctly,” Mr Senlitonga said.

Mr Senlitonga urged consumers to be vigilant in their efforts to avoid penalty fees, particularly as these fees are now being examined more than ever for their fairness in recovering costs.

CANNEX’s database tracks over 25 different types of credit card fees. The most common fees incurred, to varying degrees, are annual fees which range from zero to $300, one-off fees such as obtaining a secondary card, cash advances and foreign currency conversion fees.

Penalty fees with a sting include over-the-limit and late payment fees.

Some cards analysed by CANNEX have concessions when you go over your approved credit limit. For instance, Westpac NZ will not charge a penalty if the situation is rectified before the final day of your monthly statement period. ASB Bank will charge a $20 over-the-limit fee only if the account balance exceeds 10% of the approved credit limit in any monthly statement cycle.

While consumers can’t avoid annual fees, they can avoid penalty fees and cash advance fees, Mr Senlitonga said.

CANNEX has today released its credit card star ratings which highlight five star credit cards for the four spender types – Everyday Spender, Big Spender, Habitual Spender and Impulse Spender. Consumers can download this report on www.cannex.co.nz

Impact of Fees on the Card's Overall Costs
Card 1 Card 2

Interest rate 12.90% 12.90%
Annual fee $50 $50
Balance accruing interest $1,000 $1,000
Over the limit penalties apply $50 $0
Late payment penalties $50 $0
Interest Cost $129.00 $129.00
Fee & penalty costs $150 $50
Total Cost $279.00 $179.00
Annualised rate of cost 27.90% 17.90%

About CANNEX:

CANNEX provides New Zealand’s only fully interactive online research service in retail finance.

Founded in 1992, CANNEX (Aust) Pty Limited is Australia's premier researcher of retail finance information for over 350 institutions such as Banks, Building Societies, Credit Unions, Finance Companies, Brokers, Mortgage Originators, Life Companies and finance related Internet Portals.

CANNEX customers use the extensive database for competitor analysis as well as a means of disseminating their product range. CANNEX also distributes this information to print and electronic media for publication and to Agents, Accountants, Brokers and Internet Portals for use in advising their clients.

Truly independent - this differentiates CANNEX from others.

Does CANNEX rate other product areas?

YES, CANNEX also rates deposit accounts and home loans.. These star ratings use similar methodologies to the credit card star ratings methodology. This guarantees the quality and transparency of these other star ratings. The use of similar star ratings logos also builds consumer recognition of quality products across all categories. Please access the CANNEX website at www.cannex.co.nz if you would like to view the latest CANNEX star ratings reports of interest.

ENDS

Cannex Credit Card Star Ratings Report (PDF)

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