Bank over limit with credit offer
The total amount of credit card limits has topped $20 billion for the first time, and that does not surprise one retiree from West Auckland whose bank has offered to lift his limit by $19,500.
Gary Osborne, a retiree who owns two rental properties, didn't ask for the increase offered in a letter by his bank, ANZ.
His limit hasn't been automatically lifted, but a coupon was attached to the letter which he had only to send back for his limit to rise from $26,500 to $46,000. The letter said that as a valued customer, the new, higher limit had been "pre-approved".
Osborne won't be accepting the higher limit, calling it a "ridiculous" sum, and saying he has not need for it.
And he questioned whether it signalled an increased desire by banks to lift their personal lending, after some lacklustre years when households reined in their consumer borrowing.
Data shows the gap between credit limits and the outstanding balances had grown to just short of $14 billion at the end of April, continuing an almost unbroken line of increase in the past 10 years. At the end of April 2004, it was just short of $9.5b.
In that time general inflation, as measured by CPI, had resulted in the spending power of $1 in the first quarter of 2004 being equivalent to $1.29 in the first quarter of 2014.
By contrast, credit limits had increased by 50 per cent from $13.3b, topping $20b for the first time in April.
In 2010 it was lower than in 2009, a period in which banks were taking a cautious approach to lending after the tremors sent through lending markets worldwide by the global financial crisis.
Some of that rise is driven by new customers taking out cards, and people with cards asking proactively to have their limits lifted, but an unknown proportion comes from people accepting "pre-approved" offers in banks' rolling programmes designed to increase lending growth.
ANZ said as a responsible lender it weighed a wide range of financial and behavioural factors in deciding whether a customer was suitable for an offer to increase their credit limit and how much that should be.
"We will only offer a limit increase where we're confident a customer can comfortably afford the repayments," it said in a statement.
And it said people were free to accept or simply ignore offers to increase limits.
"Any offer, however, is exactly that. It's up to the customer whether they accept a higher limit, or fully use their limit."
Individual cardholders have broadly kept the amount they owe on their cards at the same proportion of their total limits.
In each of the years ending April, cardholders' combined limits were between 3.2 and 3.4 times the amount that was owed overall.
Kapiti Coast financial adviser Liz Koh's view on the $46,000 credit limit offer is simple.
"For that amount of money, you certainly wouldn't want to put it on a credit card at the current interest rates. You would look to obtain cheaper sources of funding."
For someone with equity in homes and rental properties that could be extending the mortgage.
Credit cards should be avoided as a source of debt as it is so expensive, she said.
Rather they should be used as a convenient payments tool and paid off monthly.
People using credit cards as a convenient form of emergency debt are in danger of digging themselves a deep hole they could later struggle to climb out of because of the high interest charged, Koh warned.
She said there has been a societal shift in the way debt is offered to make certain purchases.
Fifteen or so years ago, items like beds and TVs were often bought on defined hire purchase agreements. These days, those agreements have been replaced by the likes of GE Money lines of credit and the Q Card.
And like a credit card, once the debt has been repaid the line of credit remains temptingly in place, and it is this the banks are competing against.
Retirement Commissioner Diane Maxwell said the commission is striving to get people to understand the difference between good and "dumb" debt. As a payment mechanism, credit cards are a useful tool, but the aim has to be to pay them off without incurring interest.
Very few people would need to make monthly payments of $46,000, she said.
"If they were booking a safari for a month they would be looking at up to $30,000, but there's a very small number of people who would be doing it."
Having open credit lines is in itself not a problem.
Maxwell has both a Q Card and a GE Money cards as a result of buying things on the extended zero per cent interest deals retailers offer, but she pays purchases off in full before interest kicks in.
"I have got no intention of paying interest to them," she said.
She does receive lots of texts from companies urging here to spend more.
And the signs are that the public is becoming more receptive to taking on debt. In the year to the end of March 2012, consumer credit growth increased by only 0.1 per cent, Reserve Bank figures show. One year on that had increased to 1.8 per cent and in the year to the end of March 2014, it was 5.5 per cent.
Sunday Star Times