Overdraft interest rates are fully liberalized
There will be no bottom-line "price war" for credit cards
Our reporter Chen Guojing
The "Notice of the People's Bank of China on Promoting the Market-oriented Reform of Credit Card Overdraft Interest Rates" (hereinafter referred to as the "Notice") was issued recently.
The new regulations clarify that the credit card overdraft interest rate is determined by the card issuer and the cardholder through independent negotiation, and the upper and lower limits of the credit card overdraft interest rate are cancelled.
This has aroused the concern of many consumers. Does the overall "relaxation" of credit card overdraft interest rates mean that it will intensify bank competition and lead to a "cliff" decline in credit card overdraft interest rates?
In this regard, experts believe that a "price war" without a bottom line will not occur.
Credit card overdraft interest rate, in simple terms, is that if the credit card holder fails to repay the full amount during the interest-free period, the bank will charge the cardholder a certain amount of interest after the interest-free period. Pricing.
In recent years, the management of credit card overdraft interest rates has developed from a fixed interest rate to a floating interest rate. Before the "Notice" was issued, the central bank set the upper and lower limits of the credit card overdraft interest rate for banks, with the upper limit being five ten thousandths of the daily interest rate and the lower limit being the daily interest rate. 0.7 times of five ten thousandths, this range is equivalent to the annualized interest rate 12.6% to 18%.
Why fully liberalize credit card overdraft interest rates?
The central bank stated in the "Notice" that this is to deepen the reform of interest rate marketization.
In this regard, experts said that the starting point of the "Notice" is to further promote the marketization of credit card business.
As early as 2016, the central bank has given banks the right to determine the credit card overpayment interest rate, interest-free repayment period, and minimum repayment amount.
Under the current policy background of accelerating the opening of the bank card clearing field, the marketization of overdraft interest rates is equivalent to the last step in the marketization of credit card business.
Dong Ximiao, chief researcher of China Merchants Union Finance, said that the abolition of the upper and lower limits of credit card overdraft interest rates does not mean that overdraft interest rates will soon fall below the original lower limit, but that bank pricing may be more differentiated.
After the upper and lower limits are lifted, it is expected that the regulatory authorities will continue to guide banks to maintain a good competitive order through self-discipline mechanisms and other means, and banks will not fight a bottomless "price war".
"Don't worry about the vicious decline of credit card overdraft interest rates." Credit card senior expert Dong Zheng analyzed that bank funds are not free, and there are costs.
Therefore, even if the issuing bank sets the price according to the market-based overdraft interest rate, it cannot avoid the cost of funds.
Even if there is competition among banks, eventually the industry-recognized pricing range standard will gradually form.
According to data from the Central Bank, as of the end of the third quarter of 2020, the number of credit card and lending card in use in my country totaled 766 million, an increase of 1.29% from the previous quarter.
However, as consumer financial institutions and various Internet consumer credit products join the competition, the competitiveness of bank credit card products has declined.
The industry believes that after giving banks more independent pricing power, it will help the issuing banks to better serve consumers and enhance the competitiveness of bank credit card products.
Dong Ximiao believes that financial consumers with high frequency and amount of overdraft and good credit will get more favorable overdraft interest rates.