Credit Where Credit's Due

Newcastle Herald

Tuesday November 22, 2005

LEADER

BY voluntarily adopting a code of responsible conduct for credit card lending, the ANZ Bank is really only doing what all the banks should have done long ago. And the chances are that sooner or later governments would have been forced to impose responsible behaviour by law on the issuers of credit cards.

Nevertheless, the bank has done the right thing. With credit card debt in Australia at a record $32 billion in September, according to the Reserve Bank, it is hoped that other providers will follow the ANZ's lead.

Under its code of conduct the ANZ has announced that it will stop offering "financially vulnerable" people higher borrowing limits. It will also stop sending people on fixed incomes unsolicited offers of credit limit increases.

For many households credit cards are a useful tool for smoothing cash-flow and avoiding the need to handle large amounts of cash. But for a significant number they are a temptation to spend more money than can be comfortably repaid. Once a household fails to make a payment within the customary interest-free period, debt begins to grow as interest, generally at higher rates than for other forms of credit, begins to accrue.

Cynics have long argued that having customers in this position is highly advantageous and profitable for credit card providers. The downside is that spiralling debt and ever-increasing repayment costs inevitably lead to default and dispute.

Credit card providers are in an excellent position to monitor the financial health of the households to whom they extend credit. It is not unreasonable to expect them to exercise appropriate caution before throwing potentially expensive money at people who may have difficulty paying it back.

Coincidentally, the Australian Consumers' Association (ACA) has also been considering credit cards, with a particular emphasis on reward schemes. Not surprisingly, the ACA has found that people paying interest on credit cards should forget about accruing reward points and instead shop for the card with the lowest fees and cheapest interest rate.

That's the bottom line. No matter how the facts are dressed up or obscured, credit is debt and debt has a price. In the case of cards, the price can be very high.

Drugs and driving

WITH an insurance company survey finding that nearly half the drivers on the road believe taking illegal recreational drugs doesn't affect their driving skills, the other half may have reason to be worried.

It wasn't so many years ago that drinking and driving was considered acceptable and many drink-drivers would have scoffed at the idea that alcohol might have interfered with their driving skills.

Time and testing have proven beyond doubt the fallacy of their beliefs, to the point where 78 per cent of drivers surveyed now say they would leave their cars at home if they planned to drink.

That dramatic change proves what a combination of research, education and enforcement can achieve. It appears these three factors may now need to be brought to bear on drugs other than alcohol.