Credit card report takes aim at banks' limit increase approvals, financial checks

Sydney Morning Herald
February 20, 2017

The majority of Australia's banks are increasing customers' credit card limits without checking whether their financial circumstances have changed and are failing to ask customers basic questions about the purpose of new credit cards.

A report by the industry's own self-governing body, the Code Compliance Monitoring Committee, reveals that while the banks generally have "robust, and often complex" processes in place, they may be failing to meet a number of credit card lending requirements.   

The report, released in January, comes as Prime Minister Malcolm Turnbull lauds a decision by ANZ to cut interest rates on two of its credit cards by 2 per cent - down to 11.49 per cent. The Prime Minister, who is battling calls for a banking royal commission including from within his own party, said the decision by ANZ showed his policy of hauling bank chiefs in front of a parliamentary committee was working.   

The CCMC report raises a number of concerns about credit card approvals, including that the banks "did not always request updated financial information for limit increase applications".

It also claims banks "do not generally make inquiries about a customer's purpose when they apply for a credit card".

By law, a credit provider must make reasonable inquiries about a customer's financial situation, requirements and objectives, according to the corporate regulator.

It must also take reasonable steps to verify a customer's financial situation and decide whether the credit contract a customer is asking for is "not suitable" for them.

The report raises questions about how banks check a customer's ability to repay credit card debt, saying banks are generally assessing them as being able to repay the loan "if the funds remaining to them after they meet their expenses and credit repayments in a period (either weekly or monthly) will be greater than $0".

Consumer advocate Gerard Brody, of the Consumer Action Law Centre, said the findings were further evidence that irresponsible lending was systemic within the industry.

"While cuts to interest rates are positive, irresponsible credit card lending is rife, meaning too many Australians are saddled with debt," Mr Brody said.  

"Banks failed to ask customers the purpose of new credit cards, a legal requirement, meaning some people end up getting cards to purchase a car, a home deposit or even debt consolidation."

"Banks also rated poorly in relation to credit card limit increase assessments, failing to obtain up to date information from borrowers."    

The Code Compliance Monitoring Committee was set up by lobby group the Australian Bankers' Association (ABA) to monitor banks' compliance with the code of banking practice - an entirely voluntary industry code of conduct.

A separate review of the code, by consultant Phil Khoury, commissioned by the ABA, has also been released, calling for improvements and approval by the corporate regulator.

CCMC's report recommends banks ask customers about the purpose of the credit card and discuss alternative financial products if the card is for general living expenses.

It also says banks should consider developing tools to "better verify a customer's actual financial circumstances" and for banks to introduce a "serviceability buffer" to ensure customers can pay more than just the minimum monthly payment.

But Mr Brody said the industry's efforts to clean up its act were not going far enough to address the problem.

"What we need is fundamental reforms to credit card lending requiring banks to assess whether credit limits are affordable over three years," he said.

"This will reduce unsustainable credit card debt more than small interest rate cuts."

Consumer advocate group Choice has said the rates being offered by the big four banks had been too high for too long, and described ANZ's rate decision as "cold comfort" for customers. 

"They are still toxic products and the big four banks know that," Choice spokesman Tom Godfrey told the ABC.

ABA chief executive Steven Münchenberg said each bank had its own systems in place for assessing a customer's reasons for a credit card or limit increase. He said they would be "considering the CCMC's findings within the framework of what they are already doing.

Why do the liberal party insist on protecting these maggots ...

Oh wait

Its time wrote on Mar 31^st, 2017 at 12:48pm:


Because it's all part of their bullshit fake service economy which results in a perpetual growth in debt rather than real wealth !!

It's all spend spend spend on the never never whilst mal taxes it along the way !!