Credit card chaos causes concern

CREDIT card debt was the focus of a consumer protection conference in Perth last week.

So widespread is the problem be-coming, according to the Australian Consumers Association, that the State Government has been called upon to make changes to the WA Consumer Credit Code and put a check on credit card providers.

The Reserve Bank of Australia is already examining the regulatory regime covering credit cards in Australia. It wants to bring down credit card costs, reduce costs for shopkeepers and introduce more competition.

But while the Government can take some steps to rein in aggressive selling practices by financial institutions, the onus still lies on people’s restraint.

The Australian Consumers Association says that, if a person has an inappropriate type of credit card for their needs, it could cost them dearly in interest.

“Make sure you’ve got the best credit card for your needs before you start ‘bashing the plastic’ in a Christmas shopping spree,” the ACA’s December issue of Choice says.

The ACA believes the consumer should get a card that suits their spending habits.

“If you know you’ll have an outstanding balance on your credit card some or most of the time, you need a no-frills card with the lowest possible interest rate,” the magazine says.

Interest-free days are more important if the consumer plans to pay the amount off as quickly as possible.

But while there is concern that consumers are taking to credit cards too well, consumer groups also point the finger at the financial institutions and the regulators.

At the conference, Australian Consumer Association chief exec-utive Louise Sylvan warned consumers that interest rates on credit cards made them one of the most expensive forms of credit on offer.

Ms Sylvan agrees that consumers are not entirely to blame for the increase in credit card debt.

“It shouldn’t just be ‘buyer beware’. Banks and other credit providers need to be reined in on their credit card offers,” she said.

“Unsolicited increases in credit limits, failure to assess the consumer’s capacity to repay, and ‘health warnings’ on credit card statements warning about the high cost of only paying minimum amounts are a few of the areas where urgent steps are needed.

“We need government leadership in legislating for better practices by credit providers and more pressure needs to be placed on the banks for keeping credit card interest rates excessively high.”

But regardless of where the blame lies, credit card debt is rising at such a rate that it is difficult to ignore.

Over the past seven years there has been a 46 per cent increase in the number credit cards in use. Almost 10 million credit cards are on issue, with 90 per cent controlled by the big four banks, the National Australia Bank, Commonwealth Bank, ANZ and Westpac.

A report by KPMG found that, in the past year, the amount owed by Australians has increased 20 per cent to $18.5 billion and has doubled since 1998 – despite relatively low interest rates.

Figures released by Dun & Bradstreet earlier this month provided a similarly grim outlook. Dun &Bradstreet believes consumer debt levels reached $72.5 billion at the end of September.

Outstanding credit card limits have also doubled since 1998, rising from $27 billion to peak at $55.7 billion in September.

And it appears consumers are al-ready caught out.

Dun & Bradstreet Australia & New Zealand chief executive Christine Christian said their was evidence of a direct correlation between rising personal debt levels, through credit card use, and the rise in personal bankruptcy levels.

“In the second quarter of 2001, personal bankruptcies were higher than at any other time in the last five years,” Ms Christian said.

Personal bankruptcies jumped from around 5,000 in the third quarter of 2000 to more than 6,500 in the third quarter of this year.

Around Australia, Queensland re-corded the highest number of bankruptcies in the second quarter of 2001, with 2,041. New South Wales was second with 1,866, followed by Victoria with 1,407, South Australia with 693 and Tasmania 263.

WA had 672 personal bankruptcies during the second quarter.

One group benefiting from the increasing use of debt by consumers to pay for purchasers is, of course, the debt collection agencies such as Dun & Bradstreet.

Although personal debt is already on the increase, there is more to come. Ms Christian estimates that, over the next four years, the consumer debt collection market is set to grow by another third, from $250 million this year to $370 million in 2005.

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