The major banks and multinational lenders are manipulating debt-laden borrowers into increasing their credit card limits by as much as 40 percent, a government-funded report has found.
The Congratulations, You're Pre-Approved report, commissioned by the Consumer Action Law Centre, said banks and credit card providers were using psychological tactics to trick consumers.
The Victorian government-funded report has called for lenders to be banned or restricted from sending customers unsolicited offers to increase their credit card limit.
The 21 letters analysed by Deakin University Business School researchers in the study included one from GE Money, which offered a borrower a 39 percent increase on an existing $A10,250 credit card limit with the opening words "I have some great news!".
One ANZ letter tried to encourage a consumer to take their credit card limit from $A15,000 to $A19,000, with the phrase "then relax and enjoy the reassurance that you have extra credit available if and when you need it".
Consumer Action Law Centre director of policy and campaigns Nicole Rich said the upbeat language of the letters could encourage vulnerable consumers to upsize their credit limits against their interests.
"People may be going through a break-up or they are suffering depression ... they may be vulnerable to these sorts of things," she said.
"It's these vulnerable people who fall into debt stress." The report called for law makers to consider banning, or at least restricting, the marketing of unsolicited credit card limit increase offers.
Australian Bankers Association chief executive David Bell said the banks' marketing of increased credit card limits was not responsible for credit card defaults.
"The evidence is that credit card default is related to unemployment, illness and family breakdown, not bank marketing," he said in a statement.
"The Australian Bankers Association does not believe that there is a sound argument for credit card limit offers to be banned by government regulation."
Principal report researcher Dr Paul Harrison, a senior lecturer in consumer behaviour and marketing at Deakin University, said lenders tried to make consumers feel they could afford the limit increase.
"We found that lenders frame their letters in various ways to make it more likely customers will not really think too hard about taking on more debt and just accept the limit increase," he said.
"The letters trigger the natural human instinct to trust `experts', in this case experts who have already determined you can afford a limit increase.
"The letters also use positive words and especially avoid the word `debt'." AAP reg
