Westpac changes credit limit increase review process and pays $1 million for past irresponsible increases
21 January 2016: When you apply for a credit limit increase, banks are supposed to run strict checks to ensure that you’re capable of making the repayments on that higher limit. It turns out that Westpac didn’t follow these lending rules when using automated processes to assess customer credit limit increase requests, which has got it into a spot of trouble with the Australian Securities and Investments Commission (ASIC).
This week, ASIC revealed concerns that Westpac had neglected to inquire about some credit card customers’ income and job status when they had requested a credit limit increase. It said this failure to make full enquiries didn’t conform to the responsible lending laws. Apparently Westpac had relied on analysing customers’ expenditure and repayments rather than checking their income and employment.
In response to these complaints, Westpac has improved its processes and introduced a new review program that may reimburse consumers who are in financial difficulty after having their credit limits increased.
Westpac will also contribute $1 million over four years to financial literacy and financial counselling initiatives to help its customers make more informed monetary choices. The bank will be contacting approximately 5,000 customers regarding the issue.
Australians are currently carrying just over $50 billion in outstanding credit card debt, so ASIC is calling for tougher responsible lending laws to protect consumers against poor financial situations and debt burden.
How do I know if I can handle a credit limit increase?
A credit limit increase may seem like a good idea, but it’s important to determine whether you can actually afford the extra responsibility before making a request. Before you submit your request, take a moment to consider the following:
- Repayment history. Do you ever struggle to repay your balance? Have you been charged late repayment fees before? If so, a credit limit increase might not be for you. Remember that you’ll need to repay everything you owe (plus interest), so it’s probably not wise to request more credit if you’re already struggling to repay your existing debts.
- Income and expenses. Consider your annual income and expenses to calculate whether you can afford a higher credit limit. Again, remember that you have to repay everything you spend, so a credit limit increase is only a good idea if you can support the repayments down the line. Before applying for a credit limit, try to work out which unnecessary expenses you can cut back on and whether this gives you more freedom under your existing limit. For example if you have an existing balance on your credit card you might save by transferring your balance with a balance transfer credit card.
- Temptation to spend. Do you ever find it hard to control your spending? A credit limit increase might only act as another incentive to spend, so you should only apply for one if it’s absolutely necessary and you know you can support it.
Credit card limit increases can be a simple way to give yourself greater financial freedom, but they’re not for everybody. Westpac’s recent trouble regarding credit limit increases reminds us that not all cardholders are equipped to support them, so it’s important to research and reevaluate what you can afford before applying for one.