Sussan Ley (Farrer, Liberal Party, Shadow Minister for Housing) Share this | Hansard source

I appreciate the opportunity to speak in the House today on unsolicited offers to increase credit card limits. For many of us credit cards are a necessary evil, but for some, as we have heard so eloquently from the earlier speakers, they are an absolute noose around one’s neck. We have all heard from constituents that have been completely caught in a credit card trap where they simply move from credit card to credit card, taking advantage of low- or no-interest upfront fee periods and then moving to another card or having two or three credit cards going at the same time, all of which adds up to circumstances where it is completely impossible to repay the balance. In many cases, if they have got equity in their home they will capitalise that interest and payments from the credit card into a home loan, and that is considerably adding to the current home loan affordability crisis.

I would like to remind the House of what I see as a worrying bubble in consumption spending, and certainly much of it is fuelled by credit card debt. If we look at the level of household debt as a percentage of income, we see that in 1988 it stood at 30 per cent but now it averages 160 per cent. On an economy-wide scale, as we have seen, this leaves us open to economic shocks. On the level of household income, it leaves us open to enormous household income shocks to have an increase in personal debt going from an average of 30 per cent of your income to 160 per cent. We all know that consumption patterns have changed quite remarkably in the last generation. As I said, I am worried about the bubble of credit card fuelled debt that is a feature of our lives today. So I am very supportive of this motion.

Unsolicited credit card limit increase offers are often just too good to be true. Companies use words like ‘Congratulations, your increase is pre-approved’, ‘Get a little more out of every day with a credit limit increase’, ‘This is not something to be missed’ et cetera. But consumer advocates and policymakers are concerned about unsolicited credit card limit increase offer marketing strategies and the likelihood that they will lead to more consumer debt, particularly for low-income and otherwise vulnerable consumers.

The Consumer Action Law Centre says that there should be no doubt that banks and credit providers use psychological manipulation to create an environment where certain customers are convinced, often against their better interests, to accept an unsolicited credit card limit increase offer. Creditors are supposed to check a customer’s capacity to repay any extra debt. The increased credit offers get around this by putting in small print: ‘I confirm that if I utilise the new credit limit that is available on my card, I can repay my increased minimum monthly payment of $X as required by lender Y credit card terms and conditions without substantial hardship.’ It is a tiny little line of tiny print at the bottom of the page!

We know that people open these letters when they are at their most vulnerable. They may have two credit cards maxed out. They may have a store card which has some fantastic rate of interest. They may have an interest-free period that is just running out with Harvey Norman. All of these may be combining and this may seem like an offer that they simply cannot resist. When they should be going to a financial counsellor and saying, ‘Let’s get this sorted out and get into control again,’ they are in fact just taking these offers of extra debt.

I do not want this to be a bank-bashing exercise. It has been quite accurately pointed out that the banks run responsible account management practices, but I think they have let their credit card arms get out of hand and I think they need pulling back into line. I do not think it is something unreasonable for the banks to do. I know they probably feel quite defensive after the motion here tonight, but I urge them not to feel defensive but to take action and recognise that, from a consumer’s point of view, enough is enough. The Banking and Financial Services Ombudsman found that lenders who do not appropriately investigate the borrower’s capacity to pay can be liable for maladministration, but I have never heard of any instances of that, so I do not know that the ombudsman’s office is working effectively in that case. I would like to think it could.

Twenty-one letters were analysed by Deakin University Business School researchers in a study of this subject, including one from GE Money which offered a borrower a 39 per cent increase on an existing $10,250 credit card limit, with the opening words ‘I have some great news’. There is no great news in this subject whatsoever, and I urge support of the motion. (Time expired)

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