I have a burning question. Why do banks send credit cards to teenagers when they turn 18?

I intercepted ASB's letter to my daughter, complete with a credit card that arrived shortly after her 18th birthday. She had no savings history with the bank and no income going into her account. I had opened the account for her when she was young and made very occasional deposits into it.

I returned the letter to the bank with the card cut up and a message that it was irresponsible to send this unsolicited mail to an unemployed student.

Six years on I've learned that my unemployed student daughter is now several hundred dollars in debt due to the ASB allowing her to have a credit card. She is now listed as a bad credit risk.

I have written to the bank to ask how a person with no savings record and no income can obtain a credit card in the first place? (I'm still waiting for a response.)

I am sure the ASB is not the only bank that promotes this dubious service, and I feel they are just setting these people up to fail. How is an unemployed person with no savings record ever going to make a repayment on a credit card?

Perhaps I am being an over-protective mother. But I am gutted that my daughter is now on a bad credit list which will affect her for the rest of her life.

It's feast or famine. Your daughter got credit too easily, while recent correspondents - including one below - had trouble extending their credit-card limits. ASB seems puzzled by your letter. "As a rule, ASB does not send credit cards to customers without their consent," says a spokeswoman. "Our lending criteria also require customers to have an income.

"It's not clear whether or not this customer received the credit card when she was a student. In the case of students, a student allowance may qualify as income. However, a credit-card application must still be completed by the customer, which requires approval by ASB before they receive a credit card."

She adds that, "ASB does not have any record of a complaint of this nature, but we are more than happy to respond directly given the opportunity.

"With regard to the daughter's credit record, ASB would be more than happy to discuss the customer's current financial situation and provide assistance." I suggest your daughter takes up that offer. Bad credit records can be turned around. She might want to take along a copy of this Q&A.

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We should note that all of this started six years ago. I expect credit card practices have since been modified by the introduction of the Responsible Lending Code, which took effect for contracts entered into after June 6, 2015. More on this in the next Q&A.

Oh, and I don't think you're being over-protective.

Responsible lending

At the end of the article "Not enough credit" in your column of February 25 you say each bank is allowed to make its own decisions on how much credit it extends. What about responsible lending that banks are governed by?

I am involved in the financial services sector, and often see people being told they can borrow huge sums of money. When we closely look at the customer's actual expenditure that suggests they will not be able to afford it, and in many instances would be going backwards by thousands of dollars a month.

It is my understanding that just before our last financial crisis New Zealand families were spending 116 per cent of their income, meaning that they were spending $1.16 for every dollar they earned. Eight years on I understand this figure now to be 160 per cent plus. I wonder where this will end. Is this a concern to you? Your thoughts please Mary.

Let's get the numbers right first.

Reserve Bank governor Graeme Wheeler said in a recent speech, "at a time of heightened uncertainty, households are particularly vulnerable to a correction in house prices given the large rise in household debt since 1990. Household debt is now equivalent to around 165 per cent of household disposable income, up from 100 per cent in 2000 and 60 per cent in 1990."

So it's household debt that is way higher than disposable income, which is basically income after tax. That's not quite as alarming as spending being way higher than income.

Debt typically builds up over several years. But still, the near tripling of debt compared to income since 1990 is a big worry.

You're quite right, therefore, to be concerned. I am too.

My comment two weeks ago about banks deciding how much credit they extend was in response to a reader who was turned down for a higher credit limit, and asked, "Who is the financial authority that makes such stupid regulations?"

The Government doesn't get involved when a bank decides not to give someone credit.

Nor should it, in my opinion, unless there has been unfair discrimination. But you're talking about the opposite - when a bank or other lender gives credit too easily. And yes, the Responsible Lending Code applies then.

Under the code, says a Commerce Commission spokesman, "lenders must make responsible lending decisions so the loans they provide are:
• "Suitable - to provide the right types of loan products to suit the purpose of the loan (not about what the borrower wants to spend the money on - the lender shouldn't have to make a moral decision for the borrower).
• "Affordable - the borrower must be able to make payments without suffering substantial hardship.This hinges on the lender completing a reasonably accurate budget and taking other relevant factors into account.

• "Understandable - the lender must assist the borrower to understand the full implications of entering into the agreement. (That is, what it means to be a guarantor, what repercussions a wages assignment authority could have, what security could be repossessed and sold and the financial effect of missing a payment and incurring default fees and default interest)."

The rules apply equally to guarantors - who stand behind a borrower and pay up if the borrower doesn't - as well as borrowers, says the spokesman.

According to Consumer New Zealand, "The changes aim to prevent consumers being locked into loans they can't afford and may have little hope of repaying. They're also designed to stamp out ads for 'easy credit' that target low-income consumers and vulnerable borrowers unable to obtain finance from banks."

If you see situations where you think a lender is not following the code, you should contact the Commerce Commission.

Why all the questions?

Like your readers last week, I too - being a very long ANZ customer since starting work at 16 - had shocking trouble recently lifting my credit-card limit to only a quarter of my previous one after it had earlier kept offering increases. My limit had reached $13,000, but I rarely used it so cut it back to $500 for emergencies, and now I wanted it lifted to only $3000.

The ANZ bank manager let me use his phone to ring. It took one hour talking to a young ANZ person answering many stupid questions. They ignored that our Auckland house is paid for and we have large term deposits with them, plus I am on a very good salary that they can easily see on my bank statement every payday.

After half an hour I said, "Are all these questions needed?" He said, "Yes, it is our procedure to ensure no risk."

ANZ needs to get practical or lose many long-term customers to other banks that offer a discount of 75 per cent off interest for two years to new customers. Will it learn in time?

I forwarded your letter (without your name) to ANZ, and asked, "What's going on here? I'm not getting letters about other banks doing the same thing. Has ANZ changed its policy, and if so why?

The reply: "ANZ credit-card policies haven't changed. However, we have voluntarily adopted the Responsible Lending Code to help us comply with the Credit Contracts and Consumer Finance Act 2003 (CCCFA). This was updated with new lender responsibility principles in June 2015.

"We take our commitment to being a responsible lender seriously. As credit cards are unsecured debt, we look at both a borrower's income and expenses to help satisfy ourselves that a higher credit limit is affordable."

I also asked, "I know you can't discuss individual cases, but if we take this letter at face value - the man is a long-term customer, has a mortgage-free house, large term deposits, a very good salary being deposited into ANZ, and has previously had a $13,000 credit limit - why would the bank need to spend an hour talking to him?"

The reply: "Without being able to comment on specific cases, having a good income and debt-free assets doesn't necessarily mean a customer has sufficient disposable income to afford a higher limit on a credit card."

It's good to know ANZ is acting responsibly. But could it be getting a bit carried away?
Still, at least one correspondent is sticking up for the bank. Read on.

Income key factor

The ANZ got quite a caning from correspondents in your column last week over its refusal to increase some credit-card limits.

Without knowing the specifics that led to someone being declined, there seems to be a general assumption that having plenty of assets should entitle a customer to an increase.

But while that is important, having a good income is even more important, as demonstrated by the fact that quite a portion of credit-card lending is unsecured - hence the high interest rates.

Particularly in Auckland, some superannuitants whose property has increased hugely in value but whose income has remained static, are having difficulty meeting their substantially increased rates demands, and in some cases have even been obliged to sell up. In other words, they are asset rich but cash poor. In those cases it would not be a kindness to extend their borrowing facility.

That's a fair point. But it doesn't seem to apply to the recent correspondents, who all had liquid assets - easily converted to cash if needed - such as large term deposits or accessible KiwiSaver money.

People struggling to pay their rates might want to look into:
• A rates rebate - a reduction of up to $610 a year. Your income needs to be under $24,470 plus $500 for each dependant in the household. See tinyurl.com/nzRatesRebate.

For Aucklanders there's more info at tinyurl.com/AuckRatesRebate.

• Rates postponement - you put off paying part or all of your rates until you sell the property or die. Basically, the council lends you the money in the meantime. You pay upfront costs as well as interest, which will compound over the years. There's no maximum income. For more info on Auckland Council's rates postponement, see tinyurl.com/AuckRatesPostponement. Some other councils also offer similar schemes.

Mary Holm is a freelance journalist, a director of the Financial Markets Authority and Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. Her website is www.maryholm.com. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or Money Column, Private Bag 92198 Victoria St West, Auckland 1142. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.