Watchdogs warn unwary consumers

The Consumer Credit Legal Service, the Australian Consumers' Association and Dun & Bradstreet have criticised banks, retailers and credit-card issuers for driving Australians' household borrowing surge. They have singled out unsolicited offers of credit cards, loans for share purchases and interest-free retail buying plans as the major contributors to household debt growth, which is now approaching $80,000 on average. In total, Australians now owe a record $558 billion, or around $122 for every $100 of income. While the majority of the debt is for housing loans, $101 billion of the total is for credit cards and personal loans.

Dun & Bradstreet says that bad debts are 30 per cent higher now than they were at the same time last year, with credit card bills, personal loans and mobile phone bills the main culprits. Paul Gillett, from the Consumer Credit Legal Service, says he's concerned about interest-free retail purchasing plans. Many customers don't realise that these are attached to credit cards, he said, and if the full amount is not paid off in time they are facing interest of up to 27 per cent.

The ACA is also critical of credit card companies which offer cards to people, sometimes with credit limits of up to half the person's annual salary.
The Bank of Melbourne has defended its campaign encouraging home owners to borrow for a second property. It is intending to send out brochures this month asking people “Why stop at one property?” But spokeswoman Julia Quinn said last week that people wanting to borrow for investment properties will not be granted loans unless they prove they have to capacity to handle interest rate rises.