Credit card ageism

Why are self-funded retirees being denied credit cards?

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01 .Introduction

In what appears to be a widespread pattern, self-funded retirees are having their credit card applications knocked back.

Making sure borrowers are creditworthy is essential to preventing financial systems from coming undone. For proof, look no further than the US lenders that handed out home loans like lollipops until late 2007 or so and then went bust as borrowers defaulted en masse, kicking off the global financial crisis.

The issues surrounding that event rightly gave rise to new responsible lending standards in Australia. But should credit card providers be allowed to turn you down just because your working days are over, regardless of your financial position?

Judging by what consumers are telling CHOICE, some of Australia’s largest financial institutions appear to be leaving a major demographic out of their risk evaluation scenarios. A number of self-funded retirees have contacted us saying their credit card applications have been knocked back without due consideration.

For more information about credit cards, see our Borrowing section.

Widespread denial

GE Capital’s 28 Degrees MasterCard, which won the 2012 CHOICE Award for Best Travel Money Card, is a particular case in point. We still think it’s a winner when it comes to fees and foreign exchange rates, but getting your hands on one may be easier said than done. Rosemary, a CHOICE member and self-funded retiree who owns her own house and is debt free “apart from credit card debt, which I pay in full each month”, was refused a 28 Degrees card after applying online.

So were members John, Sandy, Bob, Robin and Graeme.

I can only put the refusal down to her being too old, and maybe they thought she’d rack up a huge debt and then kick the bucket.

- Becky

Graeme said the refusal was based on his inability to show three payments to his bank account within a certain time frame in order to demonstrate a regular source of income. Providing a statement from a super fund account worth $3.5 million and a recent annual drawdown of $73,000 wasn’t satisfactory.

“After a number of quite long phone calls, I was told that a letter from my accountants may help,” Graeme told us. “At that point, I decided not to continue, but I do worry about my credit rating because of the decline.”

Becky’s attempt to get a 28 Degrees card for her 85-year-old mother-in-law, who owns her own apartment and has savings of $200,000 and an annual income of $23,000, met a similar fate. “I can only put the refusal down to her being too old, and maybe they thought she’d rack up a huge debt and then kick the bucket.”

Knockbacks are also being delivered by the big banks. Rita’s experience with ANZ, where she and her husband, John, have banked for 29 years, shows how difficult it can be even for long-time customers to achieve creditworthiness.

Rita, who is 77, wanted to switch her ANZ Gold card into her name since her husband is about to turn 80 and lose access to the card’s travel insurance. Despite having the card for 15 years, ANZ refused to make her the nominated holder. (She had better luck with the St. George Low Rate Gold card.)

Another self-funded retiree, Lurline, detected “blatant discrimination” when she was given the cold shoulder after applying for a Woolworths Everyday Rewards Credit Card. “I rang them about it and was told that was the policy. I pointed out that a self-funded retiree has more security money-wise than a young employed person.”

And Bruce, 75, was “disgusted” after his request to have the limit on his Platinum Westpac Visa Altitude Card upped from $12,700 to $20,000 was refused. He asked for the increase because his daughter had recently had a skiing accident in Canada and was forced to come up with $22,000 in cash to pay medical bills.

“As my wife and I regularly travel overseas, I thought it would be wise to have a greater limit on my credit card in case of an emergency.” Bruce says he listed a monthly income of about $3000 and liquid assets of more than $100,000 on the application, but received a letter saying that wasn’t enough for the bank to approve a limit increase.

Gary, a self-funded retiree who has been with the CBA for 20 years but whose credit card application was turned down by the bank, thinks it doesn’t make any sense. “Self-funded retirees are a sound risk – normally signified by that status alone.”

02.Is this a systemic issue?

Whether a self-funded retiree’s application is accepted appears to be hit or miss, since some frustrated self-funded retirees who contacted us eventually did end up being approved for credit cards by other banks.

Nevertheless, Wendy Schilg, CEO of the National Information Centre on Retirement Investments (NICRI), an organisation that regularly hears from rebuffed retirees, detects a pattern.

“Banks just aren’t giving credit cards to people who are retired, and a lot of it seems to have to do with online application processes that aren’t designed to take their circumstances into account,” she says.

“We hear from people who own their home and have substantial assets who’d like to use a credit card to pay for home repairs or travel. In some cases, having their applications declined is pushing retirees towards more dangerous types of loans, such as reverse mortgages.” Schilg suggests consumers either apply for a credit card that’s suitable for their future needs before they retire or make sure the credit limit and other features of their existing card are appropriate.

The main piece of legislation that governs the behaviour of creditors, the National Consumer Credit Protection Act (NCCP), is silent on the issue of discriminatory behaviour. It lays out rules for responsible lending aimed at preventing borrowers from getting in over their heads, including the requirement that financial services providers make “reasonable inquiries” about an applicant’s ability to repay. ASIC has said inquiries should include not only questions about employment, expenses and income sources but also credit history, existing debt and overall assets.

In its regulatory guide on responsible lending, released in March 2011, ASIC cites a case study in which superannuation is identified as adequate proof of creditworthiness for a retiree. In the Financial Ombudsman Service's interpretation of the NCCP, lenders should at least demand PAYG payslips or verification of selfemployment income from tax returns and bank statements.

But the FOS offers a broader version of creditworthiness, saying an extension of credit is suitable if “the consumer has the capacity to repay the loan without experiencing substantial hardship”.

However, this leeway for defining creditworthiness doesn’t appear to be helping self-funded retirees. According to ASIC, creditors can evaluate the capacity to repay however they like and decline any application under the NCCP.

“If lenders choose to make narrow enquiries about income that fail to identify an applicant’s ability to meet repayments, that is their choice,” ASIC communication manager Angela Friend told us. “They can’t be forced to take into account additional information.”

In July this year, the Australian Bankers’ Association rejected the idea of a US-style approach to ensuring that loans are made available to certain socioeconomic groups (the US Community Reinvestment Act exists to ensure low-income communities aren’t denied credit). Philip Field, the lead ombudsman for banking and finance at the FOS, says “no bank is under an obligation to lend to anyone in Australia – you can’t force an institution to lend to a particular group”. But he also points out that any systemic attempt to deny loans to retirees could run counter to age discrimination laws.

The banks weigh in

CBA spokesperson Karen Wu disputes the notion of a deliberate effort to exclude retirees, telling us that “all customers, irrespective of their age or employment status” are subject to the same responsible lending treatment under the NCCP. The focus of a CBA credit check is on income, but according to Wu, “an income does not have to be a salary payment – other examples of incomes can include pension payments”.

She maintains there is no pattern at CBA of an increase in declined applications for retirees. GE Money media relations manager Louisa Walsh takes a similar line, and says “we appreciate the circumstances of individuals vary, and we do accept alternate income documentation, such as superannuation and rental income, to support applications”.

What can you do?

We generally don’t recommend that consumers increase their credit card liability, but being denied a credit card in an increasingly cashless society can make it difficult to access large segments of the marketplace, especially when it comes to travel.

If your bank rejects your credit card application and you believe you should have been approved, you can ask the bank to review the decision. CBA, for instance, tells us “our branch staff can refer applications to our credit officers who have access to additional information about the customer which can be taken into account”.

If this leads to further frustration, you can apply for a credit card from another institution, even if you don’t have an account there.

Be sure to read all the terms and conditions of any card you consider and watch out for teaser interest rates that go up after a few months, high penalty and/or annual fees, the number of interest-free days offered and how they are calculated, and how interest is calculated on cash advances (it generally starts accruing immediately). To compare financial offers, visit our better banking section.

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