Responsible lending ok, but not in banking code

Banks are opposing a strong statement of principle that enshrines responsible lending in the banking code of conduct in favour of promoting credit scoring.

ANZ are suggesting a four point credit check system for lenders where the bank has to use at least two points. That is based on the British system, but without the comprehensive credit reference data available in Britain. It could allow a lender to ignore the consumer's income, financial situation, and credit history and just rely on a credit scoring and credit reference check.

"There is a statement about responsible lending in the code now, since 2003," says Ian Gilbert, policy director at the Australian Bankers Association.

"What is being proposed by some is the introduction of a lot of prescription into the code that is about process rather than outcome.

"We prefer a standard like the prudential regulation authority would expect banks to adhere to in their lending arrangements and that is the standard of a diligent and prudent banker, drawing on wording from the Banking Act, when it comes to assessments of credit worthiness."

When consumers are paying off credit faster than they are spending it, a new campaign telling them they were tricked by the bank into increasing their card limit may continue to attract media attention.

The Victorian government funded Consumer Action Law Centre is taking aim at unsolicited credit card limit increase offers with a glossy study calling for strategies to interrupt the psychologically manipulative processes involved in these offers.

The consumer advocates have got Paul Harrison from Deakin University and an academic from Rome involved in research into the "psychologically manipulative processes" involved in unsolicited offers.

The architect of the campaign against exception/penalty fees, Consumer Law?s Nicole Rich, is in charge of this campaign. Like the previous penalty fee campaign, this one is based on the premise that disclosure is not enough.

"The report shows that it is wrong to rely on simply giving more information to consumers to help them make informed choices,"  Rich said.

"We need to force lenders to implement some 'psychological breaks' in the credit card limit increase process, for example, by making customers nominate their own choice of a higher limit and provide information about their current income and debts.

"It is also time to consider if unsolicited, pre-approved credit as a marketing strategy should be banned."