“It is unacceptable that banks are constantly raising lending rates while lending rates remain at zero. Profit is made here at the expense of the consumer,” Minister Johannes Rauch emphasized on Tuesday. The Ministry of Social Affairs has therefore now instructed the Consumer Information Association (VKI) to take collective action against the banking sector. He is confident that these “improper business practices” will be prohibited by law, Rauch said.
Interest rates depend on many factors in the global financial market. In the case of loans, these are usually passed on to consumers at a surcharge. The banks act differently with current accounts. The borrowing rate is variable and increases with interest rate increases in the money market. The credit interest rate remains fixed at zero, even if interest rates on the money market rise further.
On a comparison website for checking accounts of the Labor Chamber, the overdraft interest rate in the Austrian banking sector was between 6.75 and 13.25 percent. The credit interest on account balances is 0 or 0.01 percent. Already in June, Bank Austria, as the market leader, was warned on behalf of the entire industry, but was not prepared to issue a voluntary cessation statement.
“It is clear that this business practice affects the entire Austrian banking sector,” Rauch criticized. “I have therefore instructed the VKI to take legal action against this.” A first instance ruling is expected this year.
“Banks use dependence” on checking accounts
According to the Ministry of Consumer Protection, zero interest on current accounts was objectively justified as long as interest rates on the money market were very low or even negative. But after the interest rate hikes of the past few months, the banks are now saving considerably on the costs of refinancing. In June, the 3-month Euribor, against which banks lend each other short-term money on the money market, was already at 3.48 percent.
Rauch: “Consumers depend on a current account. The banks use this dependency with their corporate policies. This is a serious violation of the principle of equal treatment and bilaterality and, in our legal opinion, should in any case be inadmissible. It cannot be the case that only the banks benefit from the upward trend in the money market.”
Interest on savings accounts under observation
So far, the ministry has only taken legal action against interest-free balances in salary accounts. The situation for interest rates on savings deposits was similar until early summer 2023. However, the banks have announced changes in this area and some have already implemented them.
The ministry will therefore review the situation regarding savings interest in September 2023 and then decide whether legal measures will also be taken for savings interest.
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
