Advocates warn of rental arrears following surcharge ban

Tenants who rely on credit cards to pay their rent could soon be forced into arrears, advocates warn, after a major rental payment platform blocked the method of payment in response to a new ban on card surcharge fees.

Ahead of the surcharge ban and the Reserve Bank’s broader reforms to Australia’s payments systems that came into effect from Thursday, Macquarie Bank said it would no longer accept cards from the same date on its DEFT platform, one of the nation’s largest payments systems, which processes about 1.2 million rent transactions each month.

In announcing an end to accepting card payments, Macquarie conceded there was no alternative for affected customers relying on credit to pay their rent. “There is no like-for-like solution we can provide that will guarantee the same experience as paying by credit card today,” the bank said.

The move from Macquarie is one of the many ways banks, businesses and government agencies are changing their processes to respond to the surcharge ban and a parallel lowering of the cap on “interchange fees”, which merchants must pay to a customer’s bank to accept a card transaction.

Like Macquarie and its DEFT platform, the Australian Taxation Office has moved to stop accepting credit card payments. Across the board, banks have broadly already wound back the generosity of credit card sign-on bonuses and reward points earnings rates, due to the lower cap on fees that have traditionally funded card perks.

Associated benefits such as complimentary travel insurance have also been scrapped or scaled back, prompting a warning from the Department of Foreign Affairs and Trade to travellers that free coverage policies they might be relying on may no longer exist.

The Reserve Bank estimates the ban will save consumers $1.6 billion annually, and that it will cut banks’ revenue by $660 million a year. However, small business owners and lobby groups have complained of still having to foot the bill to accept card payments and being forced to increase their menu and product prices accordingly.

While the exact number of tenants who pay their rent by credit card is not known, industry sources said the method had broad appeal to renters who paid by card to boost their reward point earning potential, as well as contract workers without consistent pay cheques and those on a low income struggling to make payments.

Appealing to the points earners, some new businesses have emerged touting their abilities to plug the gap in a similar way.

One new platform, Pay and Earn, allows renters to pay by credit card, which the company then transfers as cash to a managing agent or a landlord’s account. Instead of applying a surcharge to card payments, it charges a “service fee” to use the platform, bypassing the ban.

Tenants Union chief executive Leo Patterson Ross said that while he was confident the market would find a way to cater to points-driven tenants, he thought financially distressed tenants were in more danger.

“The people I’d be most concerned about are the people on the edge of hardship,” he said. Some renters’ incomes “don’t line up nicely” with what landlords or managing agents expect. “If you’re a contractor or have irregular income, you can see an advantage to using a credit card.”

Patterson Ross said paying by credit card “provided a flexibility” that some people needed.

“There will definitely be some people who have used cards to pay their rent because it’s better to do that than fall into arrears even if it’s only in the short term…so they can get back on top of things relatively quickly, so the interest on the card doesn’t start racking up,” he said.

“What are they going to do? At least in the short term, they’re probably going to fall into minor arrears, maybe a week’s worth, which could become a mark on their ledger when they’re next applying for a property if another agent looks closely enough. It could be the difference between (being accepted for) a property or not.”

Fengfei Li, a senior finance lecturer at Deakin University, believes the move by Macquarie to stop renters paying by card “illustrates a potential unintended consequence of the surcharge reforms”.

Li said that while there was no concrete data on the total number of tenants in Australia paying their rent by credit card, renters as a demographic “are more exposed to cash-flow difficulties than mortgage holders”, citing data relied on by the RBA.

“Those affected could include renters already under significant financial pressure,” she said.

“For some renters, that could mean losing valuable payment flexibility, particularly if they have relied on a credit card to bridge the gap between rent falling due and income arriving and cannot find a suitable alternative.“

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