Why did the bank keep offering me more credit?

Look, I can’t stand it when people don’t take responsibility for their own mistakes. Like when people sue a pub for allowing them to drink and drive. I understand that the publican has a responsibility but, seriously, you made a choice and it was the wrong one. You may have a weakness for alcohol but I don’t think anyone could claim to be a compulsive drink driver.

However, I think there is a valid argument that banks prey upon people with limited financial skills and lure them into a debt cycle. It makes sense really because in the end you’re usually barely capable of covering the interest payments which is where the bank makes it profits anyway. Plus it’s listed as an asset on their balance sheet and they can borrow against it. Money for jam!

Consider this. I started with a credit card with a limit of $2,000 in 1995. By the time I went bankrupt that very same credit card had a limit of $25,000 and the lending bank had also given me $30,000 in unsecured loans as well, even though I had been unable to make payments on several occasions. I had disclosed my annual taxable income on each occasion and it was clear that there was no way I could service this level of debt – so why did the bank keep extending my liability?

On August 6, The Australia Institute released the results of a study into Australian banks and found that they are “aggressively encouraging” customers to take on more debt regardless whether they can pay it back or not:

“Two in three respondents (66 per cent) reported receiving an unsolicited offer for a new credit card in the past 12 months, while one in two (49 per cent) had received an unsolicited offer to increase their credit card limit. One in three (36 per cent) had received an offer for a personal loan, and one in five (18 per cent) had an offer to increase the available credit on their home loan.”

Furthermore, having a regular income was no barrier to receiving offers of credit:

“…a majority of respondents who were not in paid employment together with a majority of those living in households with a combined income of less than $40,000, had received an offer for a new credit card in the previous 12 months.”

Again, I understand that receiving an offer to increase the limit on your credit card doesn’t compel you to do so but if you are in desperate need of cash you can always make yourself believe that you will have the capability to pay it back in the future – particularly when you are in business. Things are always just about to get better, if you could just relieve the cash flow and get things moving again! A letter in the post offering you a few extra grand seems like a gift from heaven when you have suppliers holding your stock and a landlord threatening legal action.

I’m glad it’s over. I never want to be offered credit again, I hate the fact that I was vulnerable to their manipulations and I’m glad I’ve been struck off their radar. I hope that other people can see through the banks and get out earlier; or make a change before they have no option but to hit the reset button like me.

If you're interested you can read the full report here:

Money and Power: The case for better regulation in banking
August 6, 2010 Josh Fear, Dr Richard Denniss, David Richardson