Aug 162008

How many of you out there have received the congratulatory mail from your banker, clapping you on your virtual back in relation to a brand new increase to your credit card facility, despite you never having requested one?

I know I have. Numerous times. I’ve also reduced said limit, just as many times. The article in today’s Oz is disquieting, not because of the supposed psychologically devious language in the mail, but because the Australian Bankers Association makes the clearly disingenuous claim that unsolicited credit card limit increases aren’t responsible for credit card defaults. Two ways to look at that claim. Certainly, there’s no categorical statistics available which confirm the claim, but equally, there’s no evidence that unsolicited increases don’t contribute to credit card defaults. Blind Freddy would recognize the link between unsolicited credit in the hands of the irresponsible leading to an inability to repay, and subsequent default.

I know from personal experience that when one is unemployed, and the bills still need to be paid, a timely congratulatory letter from the bank advising of a $5,000 limit increase certainly helps one to breathe a little easier between jobs. Isn’t it incongruous though, that without having any knowledge of a customer’s employment situation, or even of the household income structure, a bank – in our case, Westpac – will, out of the blue, literally double the available limit on a credit card? No questions asked. No correspondence entered into. Just sign on the dotted, pass go and collect an additional wad of never-never money. Of course, some would call that ‘service’. I call it predatory behaviour bordering on the unconscionable. Something which current legislation comes down heavily upon, and yet, there’s no watchdog governing the practice. There is the ACCC and the Banking Ombudsman, however the former won’t deign to examine an issue unless it’s politically oriented, while the latter can only act after the fact, and only when a valid complaint is made. Banks know that if presented with what is extolled as ‘free money’ in the congratulatory mails, your average member of the general public will smile, sign and blithely move on, little realizing that every increased limit reduces their ability to borrow when they really need to. I long ago lost count of the number of home loan approvals I’ve had to manipulate by conditioning a reduction in credit card limits to achieve servicing. Sadly, once the home loan is drawn, there’s absolutely nothing stopping the incautious borrower from going straight out and increasing the credit card limit again. These are the flaws in our domestic finance system. Insufficient regulation where it’s needed, and insufficient information available or required in support of often imprudent lending practices.

There’s an old adage which claims that stupidity can’t be legislated against, but legislation already exists penalising predatory lending practices. My question in response to the above article would have to be, “Why isn’t that legislation being acted upon?”

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