I move:
That Seanad Éireann notes the public concern at the high level of interest charged on credit cards; notes the difficulties this poses for the public in general and for young people in particular and calls on the Minister for Enterprise, Trade and Employment to investigate the matter.
I would like to draw attention to a number of different facts about how credit cards are used, the high rates of interest charged on them and to draw some conclusions and make some additional recommendations to the Minister of State, Deputy Jacob, whom I welcome to the House.
A recent MRBI/Irish Times survey brought a number of important points to our attention. According to the poll, three-quarters of Irish people clear their entire credit card bill every month but 10 per cent of those do not know how much they owe. Just 1 per cent of those with cards admitted that they did not meet their last minimum payment.
The survey also shows that just over one-fifth of Irish adults have credit cards compared to the US where 80 per cent of adults have at least one card and many have several. This information points to a significant opportunity for European and US banks wishing to expand. Consumers can anticipate a period of intense competition as these companies try to attract new customers. That will be good for the consumer.
Credit cards obtained in the Republic carry high interest charges ranging from 18 per cent to 24 per cent. The introduction of competition to this market could significantly reduce those rates. I will make a few points later on how much we can expect that figure to decrease taking US figures into account.
The results of that survey put our discussion in context. Twenty-one per cent of adults – and equal number of men and women – have credit cards. Of these, 74 per cent cleared their balance in full the last time they received a bill; 16 per cent paid somewhere between the balance and the minimum payment and 6 per cent paid the minimum. Men and women take different approaches when paying their credit card accounts – 80 per cent of men cleared their bills and 12 per cent paid more than the minimum payment, compared to 69 per cent of women clearing their bill and 21 per cent clearing somewhere between the balance and the minimum payment. The majority of Irish adults keep their credit card bills low: two-thirds spend less than £250 per month with just 8 per cent spending between £501 and £1,000 and 2 per cent – most of whom are Dublin based – charging up more than £1,000 per month.
The amendment to the motion calls on the responsible Minister "to take immediate steps to reduce the indefensible interest rates being charged by the banks on these instruments". It is important that we keep this debate in context and do not pander to media reports by demanding an immediate change in interest rate charges. The matter needs to be investigated and interest rates must be reduced but the route we are taking this evening is the proper way to go.
There are a number of other interesting facts which may help to put our debate in context. One-fifth of Irish people have credit cards; two-thirds of the country's professional white-collar workers and large farmers do not. Of those people who have credit cards, 70 per cent pay off the entire balance at the end of each month; 10 per cent have no idea of their balance and Dublin people are more likely to have a credit card than those outside the capital and are more likely to spend more.
Women use their credit cards to buy clothes and shoes while men prefer to charge their petrol and travel bills. I wonder if we can learn something from that. Class differences also emerge from the survey with ABC1F1 categories, professional white-collar workers and larger farmers, generally using their credit cards more than those in the C2DEF2 categories comprising skilled and unskilled manual workers, the unemployed and small farmers.
That information gives us an idea of the type of people who use credit cards and how they use them. It is very easy for us to complain about the banks charging too much interest on credit cards but it is fair to say that the way in which they charge their interest and the level of interest charged is too high. We should focus our attention on the way interest is charged. Interest rates are too high, at 18 per cent to 24 per cent per month, and not transparent enough. A survey on the Internet this afternoon showed that the United States had the lowest interest rate at 7.75 per cent variable interest with 20 days free credit. The highest rate was 13.75 per cent with 25 days free credit.
Interest is not charged on credit card bills if the full amount outstanding is paid at the end of each month. Interest is only charged when the balance goes forward to the next month. The two main issues are the amount of interest attracted and the way it is calculated. While I knew it would be difficult to establish the way interest is charged, one of the disturbing things I discovered from speaking to an official in the Bank of Ireland this afternoon was that if a person has a balance of £1,000 outstanding at the end of a month and he or she pays either the minimum payment or almost all the money outstanding, for instance £990, there will be a balance outstanding on the account before the due date of £10. Interest is charged on all purchases made and is paid on £1,000 from the date of purchase. In fairness to the credit card company, interest is only charged to the day of the transaction on the account.
The banks will claim that people are informed of this when they sign up to a credit card deal but I suggest that the fine print could be bigger. People could be given specific examples of interest charges. When I spoke to an official this afternoon in the Bank of Ireland, the lady took me through the calculations and gave me honest answers but I had to make a telephone call and did so for a specific reason. I cannot comment on the policy of AIB, NIB or other financial institutions.
It appears from the survey to which I referred that people who use credit cards are reasonably well educated and have a good standard of living. The onus is on the consumer to become aware of the conditions of their contracts. While I addressed the issue that the conditions should be in bigger print there is an onus on consumers to understand what they are buying into. If we go down the route of bashing the banks the issue will not be addressed.
Although credit cards are used as a way of providing short-term finance there are better ways of getting a loan. Credit unions and banks provide low interest loans. It is important that consumers consider their needs and put together something which will best serve them instead of using the credit card system as a way of providing short-term finance.
When the Minister is considering the area of credit cards, perhaps he would investigate the issue of surcharges. It has become the norm that when people buy concert tickets and pay for them over the telephone, not only do they have to pay a booking fee, but also a credit card charge per ticket. If a person buys five tickets at £50 per ticket there will be a credit card charge on each ticket. That is unfair and should be examined.
Will the Minister examine the issue of credit card payments on the Internet? What security features should be put in place and what warnings should be given? It is vitally important for people who use the Internet to make purchases, and with the development of e-commerce, there is a secure manner in which they can pay for goods. If people use their credit card number on the Internet they should not be defrauded out of money.
There is enormous public concern at the high level of interest rates and the manner in which they are charged, which is not clear, but to suggest that we should call on the Minister to take immediate steps to reduce the indefensible interest rates is going over the top. The Minister was asked to investigate this matter and I am sure he will come back to us on it. Some of our concerns are in the area of transparency and, if a code of practice can be voluntarily implemented by the banks, this issue could be addressed in a proper manner.
