Banks are coming under extreme pressure to lower rates on frequent flyer cards amid the Virgin Australia administration and the global lockdown of the airline industry.
Consumer advocate Choice will this morning renew its campaign for an overhaul of pricing on credit cards linked to loyalty schemes operated by Qantas and Virgin.
Cardholders joined to Virgin’s Velocity program are currently unable to redeem points but are continuing to pay average monthly interest of more than 20 per cent if they revolve balances.
While Virgin is likely to be acquired by new owners in the next six weeks, the restructuring of the company could involve Velocity members taking a big haircut on their entitlements.
“Virgin Australia remains in voluntary administration and its Velocity program remains essentially frozen,” said Choice banking specialist, Patrick Veyret.
“ The value of Virgin Velocity points remains in limbo.
“It’s simply indefensible that banks continue to charge people interest rates in excess of 20 per cent on Velocity frequent flyer cards.”
Choice is campaigning for rates on all credit cards on issue in Australia to be capped at ten per cent.
Most card issuers have frozen marketing of credit cards linked to Velocity following the decision last month of Virgin Australia’s board to enter voluntary administration.
But the uncertainty surrounding the future of points redemptions has created another marketing and reputation headache for the major banks and smaller domestic card issuers.
Overseas banks are also coming under political pressure in other markets to reduce credit card rates to reflect record low funding costs available in wholesale money markets.
Political momentum is strengthening for reform in the US after failed Democrat presidential candidate Bernie Sanders appeared to have garnered majority support in the House of Representatives for his proposal to cap rates.
In Australia, loyalty schemes are relatively expensive marketing tools that have become less effective for customer acquisition and retention in the face of the buy now pay later boom.
American Express and Bank of Queensland subsidiary Virgin Money continue to levy 20.74 per cent interest on thousands of existing cardholders joined to Velocity.
Westpac charges 20.49 per cent and also an annual fee of A$250 on holders of its Altitude Velocity Black credit card.
Holders of NAB’s premium card linked to Velocity cop interest of 19.99 per cent on revolving balances and an annual fee $150.
“Velocity members are still in the dark about whether they will be able to redeem points to spend on many of the advertised rewards, such as the Virgin Rewards Store,” Veyret said.
“What’s more, Virgin has remained silent on whether people’s points will be devalued as a result of the voluntary administration.”