Banks target vulnerable customers

BANKS are using predatory tactics to target customers with financial products when they are most vulnerable, leaving customers in greater debt, a new report has found.

Banks and other financial institutions have spent up to $200 million each creating customer databases by drilling into personal credit card transactions so they can predict when financially stretched customers might be more susceptible to offers of increased credit limits, insurance, education or superannuation funds and investment products.

The National Consumer Credit Protection Act prevents banks from offering ''unsuitable'' credit to customers who cannot afford it. But banks are using advancing technology to profile and target customers with credit that will keep them in debt to the banks and always paying interest.

The Consumer Action Law Centre report, funded by the Australian Securities and Investments Commission, says policy advisers and regulators have not kept pace with advancing technology. The report links predatory bank tactics to rising personal debt.

Ten years ago, Australians owed $21.8 billion on credit cards, $15.3 billion of which was accrued interest. In February, those figures had more than doubled to $50.6 billion, with $37 billion in accrued interest. The debt per card rate was $2123 in 2002, and now sits at $3364.

Report researcher Paul Harrison of Deakin University said banks had for years used basic data such as age and income to guess when customers might accept extensions on their credit limits, but it was a scatter-gun approach.

Now, he said, powerful, more sophisticated computers could glean intimate details about customers, using information gathered from spending patterns, call centres, product registration and point-of-sale transactions.

Dr Harrison, chairman of Deakin's consumer behaviour and advertising unit, said the banks were trying to predict pivotal spikes in spending like holidays, impending babies and retirement - all times when a customer might accept increased credit limits or other financial products. A sudden spike in spending at baby stores by a woman of childbearing age is enough for bank databases to generate offers of credit or education funds.

The law centre's policy and campaigns adviser, Gerard Brody, said new credit laws offered some consumer protection, but banks were allowed to profile and target their customers through data mining.

From July 1, he said, banks would need customer consent for unsolicited credit limit offers, but even if customers refused, their data could be mined to generate mortgage, personal loan, investment or insurance offers. Mr Brody said some banks were attempting to get consent via text message or bundling in consent with an offer for an increased credit limit.

Dr Harrison said the information gathered was a powerful marketing tool used by all banks. Westpac had spent the most - $200 million over five years - developing its database on its 3.5 million customers. The Commonwealth Bank has spent about $100 million on its database, while other financial institutions have spent tens of millions of dollars.

The research found that the most profitable customers for banks were not the loyal, pay-in-full customers, but the ones who did not pay all of their monthly statement during the interest-free period. Defaulters were also expensive to chase, it found.

''Older-generation customers have grown up with the concept that you acquired debt and you paid it off, you don't have fast access to credit and don't have an ATM on every corner and that has led to a certain behaviour,'' Mr Brody said.

''Generation Y has had that weaned out of them and there is the expectation that they can get access to credit whenever they need it.''

Steven Munchenberg, chief executive officer for the Australian Bankers Association, said banks were using the technology to market themselves ''like any other business'' and that customers would make rational decisions based on information available.

A Westpac spokesman would not be drawn on the exact amount it had spent on data generation about its customers and said it was meeting its consumer lending, legal and industry code requirements.