The Scandal of Credit Card Bankruptcies

University of Canberra lecturer and former financial counsellor Gregory Mowle has interviewed 26 bankrupts as part of his PhD research into personal bankruptcy.

Most finger the plastic for their financial woes.

“They say credit cards are very dangerous, we don’t like credit cards,” Mr Mowle told ABC’s The Business.

“We’d actually prefer to go to a payday lender, because at least that’s over a fixed term, it’s going to be paid off over say six months.”

Mr Mowle’s research is backed up by the experience of Victoria’s Consumer Action Law Centre.

“Around half the people that contact us actually have credit card debt of over $10,000,” said the centre’s chief executive Gerard Brody.

“Many have many thousands more than that in credit card debt and, in fact, we’ve worked out that at least one person a week that contacts our centre has credit card debt of more than $100,000.”

Mr Mowle said many people were stuck on a credit card “merry-go-round”.

“They actually made that work for a long period of time, in some cases three or four years, but eventually it just takes one little thing for that house of cards, excuse the pun, to completely fall down.”

Pensioner pursued for card debts after already losing home

It is an experience that many people the ABC spoke to can identify with.

Mary* asked for her identity to be concealed because she only just reached a deal with her bank to clear her debts.

It was mainly investment property loans that got Mary into financial trouble, but her $14,000 credit card debt proved almost as difficult to resolve.

After being forced to liquidate her investment properties and sell her own home to repay her loans, Mary was still inundated with calls from her bank’s overseas call centres about the card debt.

“The 40 phone calls, that was during working hours while I was trying to work, four or five calls a day, and then on Saturdays and on Sundays,” she said.

“It wasn’t very pleasant at all.”

The experience was all the more galling because Mary did not even ask for the card in the first place.

“That came with the investment loan — it was a $25,000 limit and I didn’t want it,” she said.

It has become common practice for banks to push credit cards onto home loan customers.

After years of battling the bank, Mary said it took the eventual intervention of the financial ombudsman and repeated pleas to various bank officers, right up to the chief executive, to have her matter resolved.

“I had sold my own home — I would get nothing out of that because during the time that I had borrowed money from different people I’d paid all those monies back — there was nothing left,” she explained.

“That’s why I had to sell the car, ’cause I was only on the pension at that stage and I didn’t have any money for that.

“So the bank officer agreed to take the credit card and wipe that as well. What else were they going to do?”

Mary should not have been approved for the home loan in the first place, let alone the credit card on top of it.

The ABC has seen loan documents that put her income at $500,000 per annum.

While she had earned $24,000 in a single month, Mary was on commissions and did not earn anything many other months.

She said her annual income was closer to $50,000 — something the bank should have known, given that all her accounts were with them.