Thirty Two Questions and Supporting Evidence    Submission Letter to Royal Commission April-2018   Defined Terms & Documents  

21st Question

Will the Royal Commission recommend to the Three Financial Regulators that they use their existing regulatory powers to ban Reward Programs?

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Supporting Documented Evidence re 21st Question

1.         Rewards Programs -

  (a)      constitute tax evasion because benefits received can be measured as 'income' or 'cash outlays avoided', but such receipts are not income taxed.

  (b)      discriminate against Financially Uneducated And Vulnerable Credit Cardholders that Lack Financial Acumen often due to poor Financial Literacy Capacity identified and quantified by the Reserve Bank as Persistent Revolvers.

2.        Credit Card Products informs inter alia that the humble means of obtaining a 'Product' and/or a 'Service' on credit, by presenting a Credit Card to a Merchant, now renders those plastic cards to be the most differentiated product in the Western World for the simple reason of Credit Card Issuers striving to maximise their profits amidst a diverse range of Financial Literacy Capacity across Credit Cardholders and inadequate laws/regulations.

3.        Merchant Service Fees ranged between 2.2% and 0.8% in 2013 because, as noted in Credit Card Products, with some -

            *        Citi Select Premium Credit Cardholders paying a $700 Annual Cardholder Fee to receive 70,000 'bonus Reward Points' and a welter of income tax avoidance gifts ; and

            *        American Express Platinum Business Charge Card holders paying up to $1,500 Annual Cardholder Fee to receive up to four (untaxed) Reward Points for every dollar expended.

4.       Below is an extract from Choice investigation titled "How to choose the right credit card - Make it a payment facilitator, not a borrowing tool" -  27th Jan 2017 - Andy Kollmorgen

"Credit card reward schemes

Credit card reward schemes are mostly a gimmick unless you're a big spender, since rewards cards nearly always charge hefty annual fees and high interest rates. 
Credit card reward programs deliver little or nothing to consumers who don't spend generously via their credit cards. 

A CHOICE investigation of 63 rewards credit cards found that consumers would need to spend at least $2000 a month to get any return, while those who spent $1000 a month or less 
would pay more in annual fees than they got back in rewards.

Our research has also shown that cards that reward you with frequent flyer points are a far better deal than gift card or cash back rewards cards, where rewards accumulate at a much slower rate."

5.         RBA's Review of Card Payments Regulation - Conclusions Paper - May 2016 - Section 3.4.8 Changes to benchmark compliance noted:

"When the benchmarks for credit card interchange fees were introduced in 2003, the Board’s aim was to limit the tendency for competition between schemes to drive up interchange fees. By setting the benchmarks in weighted average terms, the Bank allowed schemes significant flexibility to set different interchange fees for different transactions, some of which could be over the benchmark.  Schemes have taken advantage of this, and of the current infrequent compliance arrangements, to develop commercial strategies that encourage issuers to maximise interchange revenue. The result has been that actual average interchange fees have tended to be higher than the regulatory benchmark and have drifted further above the benchmark between the three yearly compliance points. Accordingly, the benchmark has not represented an effective cap on average interchange fees."

6.        Credit card reward value falls 63 per cent over past year  -  SMH  - 1 Sept 2017  -  John Collett