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Legislative Assembly for the ACT: 2001 Week 5 Hansard (2 May) . . Page.. 1326 ..

MR RUGENDYKE (continuing):

whether the debtor has the capacity to repay the amount of credit offered prior to approving credit limit increases.

Unfortunately, credit providers are not assessing whether the consumer has the capacity to repay the increased credit limit, nor checking to see whether the income of the consumer has varied since the credit card was issued. The only way to solve the problem is to pass legislation that makes it compulsory for all applications to be thoroughly assessed.

According to Australian Bureau of Statistics figures issued last year, new and increased credit limits in the ACT increased from $359 million in 1997-98 to $554 million in 1998-99, a blow-out of $194 million or 54 per cent. The ABS confirmed to my office that the majority of new credit limits comprised credit cards and personal loans. On a national level, personal debt has increased between 10 per cent to 15 per cent every year since 1995. Credit providers have displayed no shame in driving these figures upwards, and the unsolicited credit card extensions are a contributing factor.

I am disturbed about the credit explosion in recent times and that credit providers are utilising reward schemes, such as frequent flyer points, to induce customers to take on more debt. Although credit providers have a duty to act responsibly, the Legislative Assembly also has an obligation to ensure that the spirit of the consumer credit code and Fair Trading Act is adhered to.

If a customer requests a credit extension it is reasonable for credit providers to determine a new figure; but it is a different story when these pre-approved credit extensions are being sent out unsolicited. In one of the examples I have seen, the letter from a credit provider said:

I believe this is a dubious inducement when the provider did not even inquire to see whether the customer was still working.

Once upon a time you had to go through a rigorous exercise to obtain credit from an institution, but now such institutions appear to be on a blatant revenue-raising exercise. The Australian Bankers Association code of banking practice states in relation to the provision of credit to a customer that a bank shall take into account a range of factors to establish whether the "customer has or may have in the future the capacity to repay". Under the pre-approved credit extension practice, there are obviously no relevant factors that the institution takes into consideration. On one of the forms the credit provider included a tagline providing the debtor an option of inserting details of any income increases since obtaining the credit card so that "you may qualify for an even higher limit in the future".

Other examples that have been brought to my attention involving ACT residents include: a single student, relying on Austudy and a part-time job for income, was invited to increase from $1,700 to $3,700; a working mother was invited to increase from $2,000 to $6,000; and a single working male was invited to increase from $8,000 to $12,000.

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