ME Bank’s recommendations include the introduction and mandatory advertising of a uniform comparison rate, and the simplification of the card-switching process.
ME Bank head of cards and deposits Nic Emery said the suggested reforms would make the sector more competitive and credit card rates more transparent.
“It is by making it easier for customers to compare cards that make it a less taxing escapade for them, and consequently make them more likely to switch,” Mr Emery told Nest Egg.
“More importantly from a principal perspective, they are doing so fully informed in relation to the costs.”
The mandatory comparison rate, already a staple of the UK market, would likely encourage major credit card providers to compete on interest rates.
“The rationale behind this is really based on the reality that credit cards are complicated products, and the market is very cluttered so we feel that customers need a simpler way to work out the actual costs of the product they’re buying in the same way that it is with home loans basically,” Mr Emery explained.
“Certainly, we are behind the UK on this and I know the regulators look to the UK to see what’s going on there and to see how effective it is.”
Under the ME recommendations, credit card providers would be required to advertise the uniform comparison rate alongside their headline rate.
“There are dozens of credit cards in the market which apply different fees and use different interest rate calculations, making it difficult for customers to accurately compare,” ME chief executive Jamie McPhee said.
Additionally, credit card switching would be made easier so as to further facilitate competition, while providers would be unable to grant their customers proactive credit limit increases to combat serious debt.
Meanwhile, a floor would be introduced that requires customers to make monthly repayments of 2 per cent or more on their balance to reduce the interest burden.
“The ones most likely to get in trouble are the ones who bear the most interest and are also potentially the ones interested in balance transfer offers or low rate cards that have fees attached to them, or when the balance transfer finishes it rolls onto a significantly higher rate,” Mr Emery said.
“These kinds of rules are about protecting the vulnerable either due to misfortune or the way they approach life and spending.”