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New Credit Card Laws to Affect You

Consumers will benefit from lower surcharges at local corner stores and shops, but may also see reductions in the generosity of rewards programs on some of their credit cards.

In the past 12 month’s you may have noticed changes to your existing credit card rewards programs. This is because of changes by the Reserve Bank of Australia (RBA) to be effective from 1 July 2017, which will see credit card interchange fees capped at a maximum of 0.80%. This decision follows a comprehensive review of credit card payments by the RBA in May 2016.

As the main source of funding for banks’ rewards programs, changes to interchange fees have seen many rewards programs become less rewarding as a result. This makes it even more important than ever for customers to compare their options and look for a rewards program that offers outstanding value.

This week NAB has made a decision to ditch it’s Amex card due to the commercial realities not being able to offer a competitive rewards programs. This follows the recent move of ANZ also cutting ties with Amex. More banks are likely to announce dumping cards and further cut backs of rewards offers.

What are interchange fees?

You might find yourself asking, what exactly are these interchange fees that the RBA is changing? Interchange fees are ultimately fees paid by the merchant’s bank to the cardholder’s bank (your bank) on every transaction for the use of card schemes such as MasterCard, Visa, and American Express. These fees form part of the banks’ revenue, and in turn they are used to fund reward programs for some cardholders. But they also increase payment costs for merchants. Because consumers expect to be able to pay with their card, merchants may be unable to decline the use of that card, and that’s where the incentive arises for card schemes to raise interchange rates.

“Merchants that do not benefit from ‘strategic’ rates face much higher interchange rates and payment costs than ‘preferred’ merchants, and may have no transparency over the cost of particular transactions,” reports the RBA.

This is what the RBA is trying to control, as they expect the changes will “significantly reduce the extent to which small- and medium-sized merchants are disadvantaged relative to preferred merchants in the MasterCard and Visa interchange systems”.

Changes to interchange fee standards

The RBA uses weighted-average benchmarks as the primary element of interchange regulation, and in the new changes this will be supplemented by caps on any individual interchange fee within a scheme’s schedule.

The new weighted-average benchmarks, which are (effective 1 July 2017):

  • Credit Cards: 0.50%

  • Debit Cards: 8 cents

But the RBA is also now applying a cap to all surcharges, restricting credit card interchange fees to not exceed a maximum of 0.80%.

A key outcome from the RBA’s new rules is that the interchange fee standard will be modified in such a way as to make American Express companion cards subject to the same interchange fee regulation that applies to MasterCard and Visa systems.

These changes do not apply to directly-issued American Express credit cards, but only to American Express companion cards issued to you by other banking institutions.

The Big Four banks are known for offering American Express companion cards, where the bank issues both an Amex card together with a MasterCard or Visa card to the same account, and you earn more rewards on the AMEX card.

How will the interchange fee changes affect my credit card?

It is important to note that these changes should see little effect on interchange payments on standard consumer credit cards, according to the RBA.

The main change for consumers will be seen on premium cards and companion cards, in the generosity of rewards programs, while some adjustment in annual fees on these cards is also possible. The RBA says these reforms will likely put downward pressure on the prices of goods and services for all consumers, and will make it more possible for new payment methods to emerge as customers are less incentivised to use large card schemes.

Tips from the Heart1Stop Team

If you are a bit confused by all these RBA changes and what you should be looking out for, check out our tips to get the best value from your credit card:

  • Work out whether a rewards credit card is the right choice for you – it’s all based on the amount that you spend on the card. It’s generally not worth it to pay a surcharge just to get the rewards points. If you are being charged 1 or 2% to use a credit card and think it is okay because you are going to earn points, the reality is that the points are probably worth less than the 1 or 2% fee that you are being charged. Investigate the other types of credit cards before choosing one.

  • If you have a rewards credit card, you need to understand whether you are getting value for money out of the card. Do the rewards that you earn during the year actually pay for the card, and then give you some benefits as well?

  • You need to pay the balance at the end of the month to avoid paying interest charges, because the value you get from a rewards program is never going to outweigh the cost of interest charges if you constantly fail to pay the full amount off your card.

  • Look for a credit card with features you will actually use. There are benefits to using a credit card outside of the rewards programs: travel insurance, extended warranty insurance on things you buy on the card, price protection insurance, and others.

Rewards slashed, customers can benefit

Another change to card payment regulations will be to the surcharge standards, which will be a welcome move for consumers missing out on rewards. This change will see that merchants have the right to surcharge for payment cards, but also provide transparency by ensuring that consumers are not surcharged excessively. The ACCC has been tasked to enforce the RBA’s changes in order to protect consumers and ensure businesses are not ripping customers off with excessive surcharges.

A major win for consumers from this change is that airlines are no longer allowed to charge a flat fee (fixed rate) for people to use a credit card. The airlines have all had to lower their fees to reflect the cost of accepting that particular payment method.


This information is current as at 06/11/17.

This article has been prepared by Heart1Stop, a social media brand owned by Heart Mortgage Services and Heart Financial Advisers. The information contained in this article is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The views expressed here are not those of Heart1stop, Heart Mortgage Services, Heart Financial Advisers, shareholders, directors or staff and associated contractors and business associates. This article has been prepared without taking into account any person’s objectives, financial situation or needs. Because of this, you should, before acting on any information contained in this article, consider its appropriateness, having regard to your objectives, financial situation or needs. Any taxation information contained in this article is a general statement and should only be used as a guide. It does not constitute taxation advice and is based on current laws and their interpretation. Each individual’s situation may differ, and you should seek independent professional taxation advice on any taxation matters. While the information contained in this article may contain or be based on information obtained from sources believed to be reliable, it may not have been independently verified. Where information contained in this publication contains material provided directly by third parties it is given in good faith and has been derived from sources believed to be accurate at its issue date. It is not the intention of Heart1Stop or Heart Mortgage Services and Heart Financial Advisers that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. To the maximum extent permitted by law: no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up to date or fit for any purpose; and no party of Heart1Stop or associated entities as mentioned is in any way liable to you (including for negligence) in respect of any reliance upon such information. This article may also contain links to websites operated by third parties ("Third Parties") who are not related to Heart1Stop. These links are provided for convenience only and do not represent any endorsement or approval by us.

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