Banks still using credit cards to encourage debt

THE big banks are still free to bump up spending limits on credit cards without the say-so of cardholders — despite a ban proposed two years ago to protect consumers.

In early 2005 the Financial Regulator unveiled plans to outlaw the practice, saying banks were making it too easy for people to get deeper into debt.

Yesterday the regulator admitted the curb had yet to be brought in, insisting the banks had been tied up implementing other consumer protection measures instead.

But consumer champions last night insisted the ban was vital if vulnerable credit card holders were to be shielded from getting into difficulty.

Michael Kilcoyne of the Consumers’ Association of Ireland, said: “Cardholders should only have their credit limit increased at their request so they can have control over their borrowing. If they have a €1,000 limit then they know they can’t spend any more but if the bank automatically increases this to €2,000 then they can keep on shopping.

There’s clearly a commercial advantage to the banks in doing this as they earn more interest but it’s not in the best interests of consumers.”

The curb was first proposed in February, 2005, when the Financial Regulator unveiled plans for a new, wide-ranging consumer protection code for the finance industry.

Last August a similar ban under the code came into effect to stop banks from tempting consumers into debt with junk mail offering “pre-approved loans”.

Debt counsellors backed the junk mail curb, saying consumers were tempted with easy credit they did not need.

Yesterday the Money Advice and Budgeting Service (MABS) called on the regulator to urgently implement the curb on unsolicited rises in credit card limits.

“People who have a credit card and are in financial difficulties may be tempted to use their credit limit instead of dealing with their financial problems,” said MABS spokesman, Michael Culloty.

“It should be up to the consumer to look for credit and not for banks to increase their limit without any checks or balances.

“Banks are in the business of making money and that’s why they increase credit limits automatically.”

The calls came following research published yesterday showing that half of all credit card holders do not know the rate of interest on their cards.

A cost survey by the regulator revealed the most expensive credit cards charge rates as high as 18.9% annual interest — five times the standard bank lending rate.