Banks 'psychologically manipulate' consumers

Consumers in Australia are being lured into upping the limits on their credit cards by banks and lenders that use a range of psychological tactics, a report has found.

The Congratulations, you're pre-approved report claims that borrowers are being manipulated by savvy psychological tactics and upbeat language into increasing their credit limits.

Nicole Rich of the Consumer Action Law Centre, which commissioned the report, suggests that unsolicited letters sent by lenders could encourage vulnerable people to take on more debt than they can handle.

In the report the Deakin University Business School employed researchers to study 21 different letters from lenders, including one that offered a near-40 per cent hike from an existing $10,250 credit limit and began with the sentence "I have some great news!'', the Daily Telegraph reported.

Primary researcher for the study Dr Paul Harrison suggested that lenders are trying to make consumers believe that they can service the extra debt they take on.

"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 report has called for officials to consider their current position on unsolicited marketing material offering increases on credit card limits, including a ban or at least a restriction.

According to the Age, David Bell, chief executive of the Australian Bankers Association, has a different viewpoint and believes the language is not misleading or manipulative and "written in plain English".

Mr Bell added that a bank undertakes a "very strong assessment" of a customer's ability to meet monthly payments on the increased debt.

The Reserve Bank of Australia's statistics released this week show that Australians owe more than $44 billion on their credit cards.

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