Credit card bankruptcies could be the next banking scandal


September 29 3016
ABC News

Credit cards are rapidly becoming one of the most common causes of personal bankruptcy, and there are indications that the major banks have been granting inappropriate credit limits, possibly breaching responsible lending laws.
Key points:   

    Debt consolidation loans, mainly to pay off credit cards, are up 68 per cent so far this year
    Some customers are receiving credit limits more than twice their annual income
    Consumer legal service sees "at least one person a week" with card debts over $100,000

University of Canberra lecturer and former financial counsellor Gregory Mowle has interviewed 26 bankrupts as part of his PhD research into personal bankruptcy.

Most finger the plastic for their financial woes.

"They say credit cards are very dangerous, we don't like credit cards," Mr Mowle told ABC's The Business.

"We'd actually prefer to go to a payday lender, because at least that's over a fixed term, it's going to be paid off over say six months."

Mr Mowle's research is backed up by the experience of Victoria's Consumer Action Law Centre.

"Around half the people that contact us actually have credit card debt of over $10,000," said the centre's chief executive Gerard Brody.

"Many have many thousands more than that in credit card debt and, in fact, we've worked out that at least one person a week that contacts our centre has credit card debt of more than $100,000."   

Mr Mowle said many people were stuck on a credit card "merry-go-round".   

    "They would use, sometimes, the credit off one credit card to make the minimum monthly repayment off the other credit card," he said.

"They actually made that work for a long period of time, in some cases three or four years, but eventually it just takes one little thing for that house of cards, excuse the pun, to completely fall down."


Pensioner pursued for card debts after already losing home

It is an experience that many people the ABC spoke to can identify with.

Mary* asked for her identity to be concealed because she only just reached a deal with her bank to clear her debts.

It was mainly investment property loans that got Mary into financial trouble, but her $14,000 credit card debt proved almost as difficult to resolve.

After being forced to liquidate her investment properties and sell her own home to repay her loans, Mary was still inundated with calls from her bank's overseas call centres about the card debt.

"The 40 phone calls, that was during working hours while I was trying to work, four or five calls a day, and then on Saturdays and on Sundays," she said.
Bad debts on the rise

Rising arrears on personal loans are starting to hurt the big banks' profits, explains Stephen Letts.

"It wasn't very pleasant at all."

The experience was all the more galling because Mary did not even ask for the card in the first place.   

"That came with the investment loan — it was a $25,000 limit and I didn't want it," she said.

It has become common practice for banks to push credit cards onto home loan customers.

After years of battling the bank, Mary said it took the eventual intervention of the financial ombudsman and repeated pleas to various bank officers, right up to the chief executive, to have her matter resolved.

"I had sold my own home — I would get nothing out of that because during the time that I had borrowed money from different people I'd paid all those monies back — there was nothing left," she explained.

"That's why I had to sell the car, 'cause I was only on the pension at that stage and I didn't have any money for that.

    "So the bank officer agreed to take the credit card and wipe that as well. What else were they going to do?"

Mary should not have been approved for the home loan in the first place, let alone the credit card on top of it.

The ABC has seen loan documents that put her income at $500,000 per annum.

While she had earned $24,000 in a single month, Mary was on commissions and did not earn anything many other months.

She said her annual income was closer to $50,000 — something the bank should have known, given that all her accounts were with them.

There is only one thing more rampant than the inability of people, especially the female of the species, to keep the credit card in their wallet . . .and that is the inability of the male of the species to keep something else in his trousers.

Why do some people think credit cards are 'other people's money' or something?
It's easy access to money, that has to be paid back. Nothing more.

That's the thing that some don't seem to get in their scheme of thinking?

I use the credit card so wisely, always have, paying bills, getting points, and always within the amount I have to pay back automatically every month from the savings account, so I don't pay one red cent in interest!

And I never will 

Oh yes, there were times I did do a bit of on the spur spending, but not excessively, just when some of those red 'sale' signs go up in them nice dress shops......ah well, have to spoil myself sometimes 

I find having a credit card helps to pay for online air fares when on special, and so forth.

Seems it is necessary to have one, or a debit card, as otherwise, how else can one pay for these things?

Sadly, this new way is leaving a lot of old fashioned people behind, and it gets difficult for paying stuff, unless it has a post office code to pay at the post office either by cheque or cash.

The world is starting to force everyone to use the plastic card, and soon, money will not be a handled object any longer.

bogarde73 wrote on Sep 29^th, 2016 at 3:20pm:


what for? then you might be tempted in a moment of weakness .... put it in the bin.

Good post. Heres the thing, anyone ever been to a  casino? ever think why you dont gamble with cash directly but use plastic chips instead? Its not real money, the dumber people will always be reckless with plastic and thats what the whole system is based on. Banks already know that 50 percent of people pay their credit card on time and incur no fees. You cant make dumb people smarter.

rhino wrote on Oct 1^st, 2016 at 11:50am:


Studies show that people will spend more money when they use credit cards than they would paying with cash


Quote:


People will spend more using credit cards since the pain of paying is further away. This applies even to financially literate people who claim they don't.

The_Barnacle wrote on Oct 1^st, 2016 at 12:15pm:




That's why I have only a debit card, but you still need willpower when out shopping with those