Credit card ageism

Why are self-funded retirees being denied credit cards?
 
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02.Is this a systemic issue?

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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”.

credit-card-and-retirees-moneyWhat 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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