• NAB has automatically reduced all minimum repayments for credit card customers, regardless of circumstance.
• The policy, while seeming generous, threatens to cost customers more in the long-run as interest, at rates as much as 19.99%, continue to accumulate.
• It’s led consumer advocates to call on banks to drop the policy in favour of other measures that will actually help Australians through the economic downturn.
• Visit Business Insider Australia’s homepage for more stories.

With the COVID-19 shutdown costing Australians jobs and incomes, the nation’s banks have unveiled a string of new hardship measures to ease the burden on customers – but some may prove less helpful than the banks assert.

Take NAB, which this week slashed the minimum repayments on all of its credit cards, reducing the bare monthly amount customers can pay without being penalised by more fees.

“We understand that it’s a challenging time for many customers. That’s why we’re reducing credit card minimum monthly repayments to 0.5% of your closing balance or $5 (whichever is greater),” NAB announced.

The automatic reduction, which had been flagged earlier this month, came into effect on 27 April and will remain in place “until at least 24 July”.

Significantly, any customers who had a minimum direct debit in place will have theirs automatically adjusted to reflect this new threshold, whether or not they would like it.

NAB customers will be worse off under the policy

However, while some customers will surely welcome a little financial relief, NAB’s choice to slash the minimum repayments for all customers on is hardly in customers long-term interests at all.

Customers paying less back will naturally accrue more debt, as their tiny repayments allow their existing debt to balloon at interest rates that consumer advocate Choice describes as “extortionary”.

“There are more effective measures to help Australians with credit card debt,” policy and campaign adviser Patrick Veyret told Business Insider Australia. “The best thing that banks can do to assist people in credit card debt is to cap interest rates at 10%.”

“Despite the cash rate being at historic lows of 0.25%, the big banks are still charging people interest rates in excess of 20%.”

They certainly are. With the Commonwealth Bank and ANZ you can easily be paying up to 20.24% per annum, while Westpac will slug you with up to 20.49% interest. NAB then must surely be the lesser of the evils. Nope – it charges many of its beloved credit card customers a hefty 19.99%. Gulp.

Let’s do some quick math.

The average Australian balance accruing interest is around $2,000. Under NAB’s rules, customers using direct debit to make minimum repayments are being, whether they asked to or not, automatically debited $10 each month.

Let’s assume these measures play out for the full six months to which the federal government has alluded. Having paid off a little more than $60 in this scenario, customers will still have accrued around $150 more in debt without making a single purchase.

In other words, you’ll be $150 worse off than you were before NAB “helped” you out. When this was put to NAB, the bank claimed its guidance remains the opposite of what its new policy would suggest.

“We recommend customers reduce their debts as much as they can and are encouraging customers to pay more than the minimum repayments where possible, but these measures recognise there are many people who are facing challenges and still need access to credit,” a spokesperson said.

NAB and other banks should offer customers real relief

It’s the kind of policy that threatens to exacerbate the financial burden on the vulnerable rather than reduce it, according to consumer advocate Katherine Temple.

“If the banks are serious about helping people in financial hardship, they should be putting credit card repayments and interest on hold,” the consumer Action Law Centre (CALC) policy director told Business Insider Australia.

“Measures like this simply kick the can down the road. Unless banks proactively deal with the accumulation of debt during this crisis, we are going to see a second wave of hardship.”

NAB to its credit has waived late payment fees during this period, but of course, there’s plenty more it and its competitors could do.

“We are also calling on lenders to waive late fees and penalty interest, and put debt collection and bankruptcy proceedings on hold for all consumer credit products. No one should be penalised for paying late when they are already struggling to make ends meet,” Temple said.

It could have started with the $395 annual fee it charges on some cards for example and continued looking at the whole host of money-spinning fees that boobytrap the credit card industry.

NAB remains the only big four bank to reduce credit card repayments for every customer regardless of circumstances

While all big four banks are offering hardship assistance for struggling credit card customers, only NAB made the reduction a standard for all minimum direct debits, regardless of personal situation.

“By automatically applying the change this allows customers are not required to call us during a period of significantly higher call volumes, and long wait times,” a spokesperson told Business Insider Australia.

However, just as banks have made possible for mortgages, customers could have just as easily submitted a few forms digitally to receive hardship provisions. Likewise, if there was any delay in processing, these could be fixed retrospectively, with any late fees forgiven and balances revised.

Instead, NAB customers who don’t require reduced repayments will be forced to change their arrangements anyway. Those who don’t will have been put in a position where their debt will simply accumulate faster.

That’s as the economic backdrop worsens, unemployment rises and $130 billion leaks out of the Australian economy.

For those who do need help, they’ll likely face the same challenges in six months as they do today, only they risk being in a worse financial position to do so.

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