Money

Gambling on credit…do the banks really care?

The Royal Commission into misconduct in banking has shone a light on how banks’ flout the rules about responsible lending by offering to increase customers’ credit limits. The Commission heard from one customer who even told his bank he had a gambling problem and he still got offers to increase his credit limit.

What few people realise is how lucrative it can be for a bank when customers use their credit card for gambling.

Let’s imagine a scenario where a customer uses their credit card to pay $200 using an online betting agency. This is the way most credit cards will work:

• First, the bank will charge the customer a “cash advance fee” on the payment. Most people don’t realise that cash advance fees aren’t just charged on real cash advances. There is a range of transactions that the banks deem to be cash advances, even though they aren’t! The cash advance fee will be a flat fee of up to $4, or a percentage of the payment amount or a combination of both. On a $200 gambling payment, the cash advance fee is likely to be about $4
• Next, because it is considered to be a “cash advance” the bank will charge interest, at the cash advance rate, from the first day of the betting payment. The most common cash advance rate on Australian credit cards is 21.74%. Many people don’t realise they are charged interest from day one and many aren’t aware that the cash advance interest rate can be higher than the interest they pay on normal purchases (the most common interest rate for purchases is 19.99%).

Even in the best case where the customer pays the entire statement balance by the next due date, it is likely the customer has paid about a month’s interest on the cash advance.

So on the $200 gambling payment, a customer is likely to have paid a $4 cash advance fee and about $3.50 in interest – assuming they paid it all back on the due date. That’s a whopping 45% annualised return for the bank.

With returns like that, do banks really care about customers using credit cards for gambling? If the banks really cared about people gambling, perhaps they would donate the profit they make on gambling activities to gambling support services.

By the way, gambling includes things like purchasing lottery tickets.

There are a number of ways you can avoid these exorbitant credit card costs for gambling.

• First (and possibly the best option) is to stop gambling!
• If you want to gamble, use something other than your credit card. Paypal or a debit card might be options (though you should think carefully about the security implications of using a debit card)
• If you have to use your credit card you might be able to transfer cash to your card to put your card into credit before gambling – although be careful, some cards will still slug you the cash advance fee even when your card is in credit

If you need help with gambling problems you can contact:

• Gambling Help NSW
• Victorian Responsible Gambling Foundation
• Lifeline
• Mission Australia