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,”
“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
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
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
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.