Cheers, Rob.
Drowning in a sea of debt
By BRONWEN GORA
7jun98
CONSUMER groups have called for a clamp down on credit as personal debt balloons to record levels.
The average wage earner can rack up more than $40,000 in unsecured debt before the law catches up with them, credit counselling services say.
"It has never been easier for the average consumer to go into debt," Credit Line co-ordinator Jim Connolly said.
Some financial counsellors are concerned that credit providers are not reporting customers who have fallen into debt to the Credit Reference Associaton of Australia.
They say lenders know that if they did it could possibly stop a customer approaching another lender to pay off their debt.
"We have some concern that not all applications for credit and default are finding their way on to the file at the Credit Reference Association," said a solicitor from a leading financial advice service.
CRAA credit general manager said while he had no evidence of non-reporting of bad debtors, 60 per cent of the assocation's 3500 members were not using a program that would allow authorities to check people's credit accounts monthly.
At present members need only report customers who have fallen behind in payments after two months.
"We are encouraging members to report to us using a computerised system but many are still providing information manually," said CRAA credit general manager Andrew Woods.
Lending has hit unprecedented levels drawing thousands of consumers perilously close to the financial edge.
Enticing offers by finance companies, retailers, credit card providers and even mobile phone companies have sent large numbers of middle income earners into the red.
Personal debt has jumped almost 15 per cent in a year to $61 billion across the country.
And bankruptcies are tipped to rise by 4000 this year to 28,000 according to the Insolvency Trustee Service.
Counsellors lay much of the blame on credit card providers and finance schemes offered by retailers who ignore checks in the race to win business.
"It's constantly surprising how retail finance is provided to people who don't look as though they have any job stability," said Consumer Credit Legal Centre solicitor Michael Funston.
"Some are so in debt that as soon as they lose their overtime they're in trouble."
Credit Line's Mr Connolly agreed the ease with which people were coming by credit was astounding.
"A young person on an average wage could receive an unsecured loan for $20,000 from some institutions which was unheard of a couple of 10 years ago.
"You just need a job and some sort of reasonable income."
Mr Connolly said he had still had the crumpled credit cards of one man in his drawer who had fallen $30,000 in debt in six months.
The man, who earned $42,000 a year, had been granted a loan of $9000.
He then applied for American Express and Diners Club cards and used them to pay off the loan as well as obtaining charge cards from two major department stores.
In six months he owed $29,000.
"He couldn't believe he easily he got the credit," Mr Connolly said.
"He had not lied. He did not drink or gamble. But he had this huge debt.
"The whole ethos of sitting down with the customer to assess their ability to pay has gone out the window."
Charities say they are already seeing worrying signs of the spread of debt into middle income territory.
One couple visited by St Vincent dePaul, a public servant and his solicitor wife, had fallen so far into debt they needed food parcels to feed their two children.
"They had no idea how to budget and bought expensive prepared food all the time. They had no life skills," a source said.
Mobile phones and easy finance for new cars were also dragging greater numbers of young people into debt than ever before, said Mr Funston.
"Lending is fairly indiscriminate and it is easier than ever for them to get credit," he said.
"Young people get obsessed with having all the consumer goodies and get themselves into ridiclous levels of debt."
Australian Consumer Association industrial officer Peter Kell said credit card companies should be forced to warn people not to go in too deep and set out costs and benefits more clearly.
"It's very diffficult to assess what's the best deal," Mr Kell said.
"Repayment structures are often quite complex - if anyone can work out how the free days' repayment plan works on their credit card they're doing very well."