Watchdog raps banks over credit

The Banking Ombudsman has criticised the banking practice of extending credit to customers who may not be able to afford repayments, and pre-approving credit cards to people who have not applied for them.

Liz Brown said banks were generally encouraging their customers to take on debt they could not afford.

In September, New Zealanders owed more than $4 billion on credit cards, up $217 million on last year. New Zealanders have the dubious distinction of being the worst savers in the OECD, spending about $1.13 for every $1 earned.

In lending credit to customers, banks are bound by the Code of Banking Practice. A key regulation is that banks have to "act fairly and reasonably towards you (the customer) in a consistent and ethical way".

Ms Brown said the code was being reviewed and she had made submissions about lending credit.

At the moment the code says banks undertake to only provide credit to a customer or increase their credit limit when the information available to the bank is sufficient to believe the customer would be able to meet the terms of the credit facility.

"So if they've got no information (on the customer's credit record) then they seem to be in the clear."

Ms Brown wants the wording be changed slightly to ensure banks have customer's financial details before signing lending contracts.

Westpac bank staff union members plan to strike tomorrow, in what they say is a protest against the bank's lending policies.

The staff, members of the financial services union Finsec, said they were unhappy at sales targets for credit cards and loans being included in a contract being negotiated with the bank.

Finsec said Westpac was acting unethically in encouraging its staff to sell more debt products to customers.

But Westpac said the strike is more about its pay offer to staff.

Ms Brown said there had been complaints in the past where the risks of some lending packages had not been properly explained to the customer, or where it was not a suitable investment for them.

"I'm concerned that if there is pressure on staff to sell credit then we may have the same sort of situation coming up with credit products."

Earlier this month, the Bank of New Zealand came under fire for being "socially irresponsible" in offering credit cards with pre-approved limits of up to $5000 to thousands of non-bank customers on the Fly Buys database.

The offers were apparently sent without financial checks to people including bankrupts, unemployed and people with intellectual handicaps.

And Ms Brown said there had been a number of cases in which banks had issued cards to people incapable of repaying the debt.

In one case, a beneficiary with a gambling addiction and bipolar disorder was initially given a $3000 credit limit, which was upgraded to a gold card with a $9500 limit.

"I would like to see a change in the code so that when banks are offering credit increases, the customer has to take some action to receive that extra credit," Ms Brown said.

- NZPA