Friday August 6, 2010
You might expect the global financial crisis to have made banks more cautious when it comes to issuing debt, but a new report says Australia's banks are aggressively pushing debt onto low income earners and even the unemployed.
The Australia Institute surveyed more than a thousand people and says that the banking sector is going to great lengths to offer customers more debt.
It says the big four lenders alone are spending a billion dollars a year on advertising.
The Institute's deputy director Josh Fear says 66 per cent of those surveyed had recently been offered a new credit card.
"We found that two out of every three survey respondents we spoke to reported receiving [an] unsolicited offer for a new credit card in the past 12 months, and that one in two had received an unsolicited offer to increase their credit card limit," he said.
"So that's many more than 10 million Australians who have been offered additional credit without seeking it out."
However, the most worrying finding according to Josh Fear was that many of those offered extra debt were in no position to pay the money back.
"We found that a majority of people who weren't in paid work had been offered a new credit card, and that one in three people in low income households had received an offer for a personal loan," he added.
"The more money you put into advertising debt and debt products, the more likely people are to take out these products and the more likely that some of them will get into trouble."
The Australian Bankers' Association's chief executive Steven Munchenberg says the finding that banks are lending to those who cannot afford it is false.
"We don't believe that it's actually true. There's no interest in banks providing debt to people, providing credit to people who can't repay it," he said.
"Banks have their own processes to make sure that people are only offered credit when they are able to repay it, and the Government itself is actually bringing in legislation which comes into effect at the end of the year that will actually make that a legal obligation as well."
The Australia Institute's report makes a number of recommendations. It calls for legislation to make sure credit is not extended to those who cannot pay it back.
It also wants legislation to ensure interest rates chargedHide all by banks move in line with changes to the RBA cash rate, and it recommends the practice of paying bank workers commissions to sell their products be banned.
That is a call welcomed by Christopher Zinn from the consumer advocacy group Choice.
"Bank workers and staff are incentivised for pushing credit onto people, basically the more credit that they can sell, the more returns they can get," he said.
But the Bankers' Association has rejected that call, saying it is standard practice to offer commissions across a range of industries.
Steven Munchenberg says the new National Consumer Credit Code introduced by the Federal Government will address many of the issues raised in the report.
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