Possibly a third which is risk. It is a higher risk form of credit, thus reflected in a higher interest rate.
Sorry CC card users who have to pay very high interest. It is all my fault. And the fault of the majority of card users who pay their balance off in full every month. I seem to have read that stat recently in a Canstar report.
We pay no interest. So the issuers get no money from us. In fact they lose money because there are many costs involved in providing the unsecured credit and card facilities.
So the minority are required to pay extra interest on their unpaid balances each month to compensate for us bludgers who do not pay interest.
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The credit card companies and card issuers are still making money through transaction fees everytime a purchase is made. Even if everyone paid off their account balance every month, there is still a lot of money to be made through these merchant fees.
I don’t think those paying interest are subsiding those who pay off their cards in full.
It would also be interesting to know who provides the credit…the card issuer (financial institution) or the card issuer. I suspect it is the former. If this is the case, the card companies are driven by merchant fees while the issuer by credit provided.
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Credit card companies charge the merchant fees, not the issuers.
Issuers charge the interest, not the credit card companies.
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Risk of what? Fraud and default? If you can find other risks though then yes.
The RBA indicates it is the financial institutions which charge the merchant fees…
I expect these are based on what the card issuers charge these financial institutions. I expect the margin, if any, the financial institutions get will be small compared to the potential interested accrued on credit card balances.
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I was thinking of lending money and returns for the lender…which fits into default but possibly broader.
The higher the risk a customer is, the higher the interest paid. This is particularly the case when comparing personal and business credit.
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Care needs to be taken to differenciate between issuer institutions and acquirer institutions. The issuers supply the cards and credit to the end customers, and charge the interest.
The acquirers handle the merchant side and impose the per transaction fee, much of which is the cost of the payments platform network. Be it Visa or MC, or Amex, or Eftpos.
Which raises an interesting unintended consequence … because it is my understanding that for credit cards, the interest rate does not depend on the customer. (Instead, risk is managed by setting the credit limit.) So to some extent, high risk customers may be being subsidised by low risk customers - among those customers who don’t just pay their balance off in full every month.
A potential outcome of the Victorian Treasurer’s grandstanding, er, call for review of CC interest rates is that interest rates could go up for some customers. Alternatively, credit facilities may be withdrawn from the riskiest customers.
Interest rates on credit cards are still well below the absolute maximum permitted interest rate (which used to vary from state to state but may now be nationally standardised at 48%).
It is open to the Victorian government to introduce its own lower cap, rather than doing the whining but not the work.
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Do state governments have the authority to act when payments and official interest rates are the RBA’s territory? If one does not have the authority to act, it is hardly whining to make a case.
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Yes.
It used to be that individual state governments had set the maximum permitted interest rate (and to different values).
It may be that state governments have referred that power to the Commonwealth but if so I expect that they can unrefer it.
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Westpac to cop another smack down.
Westpac taken to court over ‘poor value’ insurance
The financial regulator ASIC is taking Westpac to court over its sale of consumer credit insurance to almost 400 customers.
The insurance provides cover for consumers if they are unable to meet their minimum loan repayments due to unemployment, sickness or injury.
It is usually optional and sold by lenders to consumers with a credit card, personal loan or home loan.
ASIC released a report in 2019 that slammed CCI and found it was giving consumers “extremely poor value for money”. That followed recommendations in the banking royal commission about the insurance, too.
In a statement, ASIC alleged Westpac had mis-sold CCI with credit cards and other credit lines to customers “who had not agreed to buy the policies” back in 2015.
ASIC alleges that from April to July of that year, Westpac “made false or misleading representations that customers had agreed to acquire, were liable to pay for and that Westpac had a right to charge for, CCI”.
ASIC is seeking declarations and pecuniary penalties from the Federal Court where it has lodged the action.
“ASIC’s deep dive investigations in late 2018 and into 2019 found lenders had disappointingly not changed policies and conduct to stem harms from the design and sale of CCI,” its deputy chair Karen Chester said.
“As a result, we’ve commenced civil proceedings against Westpac.”
Westpac has been contacted for comment.
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An updated article.
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It’s important to remember that, in many cases, tax shifting is not a win-win for governments i.e. a company pays more tax in one country and potentially less tax in another country. One country gains and another country loses. That is always going to make multi-lateral agreement hard to get.
Given that the US has been reticent to address this in the past, as a major beneficiary of the present arrangements, I am suspicious of a sudden “conversion” on their part i.e. where’s the catch?
“Global minimum rate” could mean a number of different things
e.g. “all” OECD countries legislate an agreed minimum corporate tax rate (after tortuous negotiation to get that agreement) - that still leaves plenty of argument about how the profit is taxed across the different countries (which is of particular concern to countries like Australia); and it leaves open the question as to how multinational companies might alter their behaviour in response to such a change.
For example, let’s say that a multinational is currently being creative by funneling profits through Ireland. Let’s say that Ireland is strong-armed into participating in this, and raises its corporate tax rate to the new global minimum. So … Ireland gets much more tax, the US doesn’t get any more tax, the multinational has no incentive to remain in Ireland, but the multinational has no particular incentive to leave Ireland either.
I feel as if this is just a “tax and spend” grab by Biden that won’t benefit Australia at all.
Also being discussed here: The Great Australia Tax Dodge
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Regarding US taxes, under Eisenhower the top marginal US tax rate was > 90% and it was previously even higher, and corporate tax rates were > 50%. Taking tax toward zero only improves the lot of those who do not need it according to one view. Trickle down? Discredited by evidence.
As for Biden benefiting Australia, he is POTUS not PM. It might be more useful to reflect on how good our governments have been in collecting taxes and ‘resource rents’ even while the beneficiaries are enjoying record profits and paying essentially nothing or as it is reported, nothing because of the manners they can game the system to acquire and use credits.
It is obviously complex and many companies have moved to low taxing countries to the detriment of comparatively higher taxing ones since every dollar of profit goes into someone’s pockets, not into nation building.
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As mentioned in the other topic, under the right conditions, Australia’s corporate tax rate makes no difference to the amount of tax collected. Those conditions are: profit is distributed to shareholders and the shareholder is an Australian taxpayer.
Of course. I’m just pointing out that this could in fact be a bad thing for Australia, or neutral, or good. We should exercise a high degree of scepticism.
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Wealthier taxpayers to be precise…
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plus anyone with super (which is basically anyone who has worked in the last few decades, wealthy or otherwise), plus self-funded (or semi-self-funded) retirees (who need not be what I would describe as “wealthy”).
The statement that I made is true whether the recipient of the dividend is high income or low income. The high income earner will have to pay extra tax, to make up the difference, and the low income earner will get a rebate of tax, because too much has been paid. A change to the corporate tax rate just shuffles the money around but makes no difference to how much ends up in the government’s coffers.
However “wealthy” is inherently ambiguous - does it refer to assets or income? - and inherently subjective - there is always someone more wealthy than you are and there is always someone less wealthy than you are, and people’s perceptions will differ.
For completeness, I’m not stupid. I know that someone can reduce their taxable income, either through the generosity of the super system or through legally exploiting provisions of the tax system (some would call those loopholes). Even after accounting for that, I think the evidence of the last election is that it is not only the “wealthy” who benefit from the franking credit system.
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I was under the impression super paid a flat 15% rate in accumulation phase, no?
The original premise in this topic started with company tax rates and has broadened.
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