ANZ Responsible Lending
Reducing Financial Difficulty
reduce credit card over-commitment amongst
some of the most vulnerable people in
our community.
In November 2005, ANZ launched a new
Customer Charter containing stronger
commitments to convenient, simple and
responsible banking services for our
personal and small business customers.
As part of the new Charter, ANZ became
the first bank in Australia to adopt a formal
responsible lending code. This Code reflects
our view that both responsible consumer
behaviour and lending practices are required
to reduce financial difficulty.
We need to do this to:
ensure an acceptable level of debt losses; and
meet community expectations that we
lend responsibly.
In practice, it means ANZ will only lend to
customers who we believe will be able to
manage and repay the debt. It also means
we are making ourselves publicly accountable
for this – our performance on this commitment
We are leading with action – in particular
by improving our policies and processes to
will be reviewed by our external auditors
and publicly reported each year.
While we still have more to do, this report
provides you with details of our performance
so far and our next steps.
Brian Hartzer
group managing director
personal division
Key Points
ANZ is the first bank in Australia to introduce public and auditable responsible
lending promises as part of its revised Customer Charter, launched in
November 2005
The promises followed our research into financial difficulty and consultation,
particularly with financial counsellors
As a result of the promises, the pool of customers who would otherwise
have received ANZ credit limit increase offers reduced by around 11%
This is our first step; we are continuing to refine our processes to ensure
we keep our promises while seeking further innovative ways to reduce levels
of overcommitment and financial difficulty and promote financial inclusion
ANZ is using its resources and expertise to
build the financial knowledge, skills and
confidence of all Australians, particularly
the most vulnerable.
commitment to understand and help address
financial exclusion, low levels of savings,
financial difficulty and the personal distress
these issues can create.
Following our ground-breaking research into
financial literacy and inclusion in Australia,
we have made a significant, long-term
We know this commitment must extend to
providing, simple, convenient and responsible
products and services for all our customers.
Financial difficulty – understanding the issue
We conducted research into the causes of
financial difficulty in the second half of 2005,
as part of our broader national survey of adult
financial literacy. The research showed that
around 2% of the population have borrowings
and feel out of control of their finances most
or all of the time. It also identified three key
causes of financial difficulty:
‘unhealthy ways of thinking about finances’:
ways of thinking which guide financial decisions
and behaviours and which have a negative
impact on finances. For example, ‘living for
today’, ‘financial disengagement’ and
‘keeping up with the Joneses’;
‘circumstances outside people’s control’:
events which have the effect of decreasing
income, increasing expenses, or both.
For example, job loss, poor health or
relationship breakdown
‘lack of financial skills and knowledge’: this
refers to people having too low a skills base to
conduct their affairs effectively and applies to
a minority of people in the research.
As shown by the diagram below, financial
difficulty most often results from a combination
of these factors.
Unhealthy financial
ways of thinking
Circumstances
out of
individual’s
control
Lack of skills
and knowledge
Factors leading to financial difficulty
Source: Understanding Personal Debt and Financial
Difficulty in Australia – November 2005
The research provided valuable information
about financial difficulty:
1 Financial difficulty is most often caused
by a combination of factors – for example,
people with unhealthy ways of thinking are
often left without a savings ‘buffer’ and are
therefore unprepared for an unexpected
event which limits income or increases
expenses, leading to financial difficulty.
2 Financial difficulty is closely related to the
behaviour, traits and circumstances of the
individual rather than a lack of information or
knowledge. Many in difficulty have reasonable
financial literacy skills.
3 Lenders could be seen as influencing an
individual's path to financial difficulty. The
majority of people in the study with credit
cards had received unsolicited credit limit
increase offers and around half had accepted
them. Acceptance in many cases occurred
where there were pre-existing unhealthy
ways of thinking and the offer provided the
opportunity to access credit. Acceptance
was also underpinned by the perception
that ‘it must be okay’ because the lender
had sent it out.
We concluded, in consultation with
stakeholders, that there is a group of
customers who should be excluded from
credit limit increase offers on their credit
card. Financial counsellors have told us it
is the people on fixed incomes who often
become overcommitted through credit limit
increase offers, and as a result, can lose
control of their finances. Our approach is
that we should extend credit only to those
we believe can repay.
Our response
ANZ is the first and only bank in Australia to introduce independently
audited and publicly reported responsible lending promises as part of
its revised Customer Charter in November 2005.
The Promises
The promises mean ANZ customers must
pass through a series of ‘filters’ before they
can receive a credit limit increase offer.
They are excluded if they:
ANZ will:
not offer a credit limit increase offer to customers with a recent poor credit
performance or who are struggling to meet repayments on their ANZ
credit card;
have been repeatedly overdue in making
repayments in the last six months;
not offer a credit card limit increase if we know the customer is on a fixed
income (e.g. receiving a Government pension);
with any credit limit increase offer: outline how much the minimum monthly
payment would increase if the offer was accepted; recommend the customer
reject the offer if their personal circumstances have changed; and include
information about how to request a lower limit;
have made only minimum payments
(or slightly above) for the last six
consecutive months;
have an ANZ deposit account receiving
Centrelink or Department of Veterans Affairs
benefits; or
have a deeming account or other ANZ
account specifically designed to receive
benefit payments.
ensure the minimum monthly credit card payment does not fall below 2% of
the outstanding balance (unless the customer has accepted a special offer
or is in financial difficulty and we are assisting the customer with a tailored
repayment plan).
ANZ’s performance on these promises is independently audited every six
months, along with the other promises contained in our Customer Charter.
Remaining customers go through a second
filter based on behavioural scoring which
eliminates customers with unreliable credit
behaviour over the preceding 12 months
or who display characteristics of ‘strugglers’.
Results So Far…
The pool of customers to whom ANZ would
have otherwise issued credit card limit
increase offers reduced by around 11% as
a result of the responsible lending promises.
Broken down into the specific grounds for
exclusion under ANZ’s promises:
a 5% reduction was due to the exclusion
of customers who have repeatedly missed
payments or made only the minimum
payment for the previous six months; and
a further 6% reduction was due to the
exclusion of customers on fixed incomes.
We are continuing to improve our processes
to ensure we don’t miss anyone we should
be excluding from offers.
Part of the process involves matching a
customer’s credit card account with an ANZ
transaction account to check whether the
customer holds an account especially for
benefit recipients or whether a Government
benefit is being processed to their ordinary
deposit account. This data matching exercise
can become complicated where the customer’s
name on their credit card account differs
slightly from the name on their transaction
account – for example, where their credit
card account name includes their middle
name, but their deposit account name
does not. In these circumstances we are
not entirely sure, without making further
investigations, whether the accounts are
owned by the same person. To address
this issue, we are auditing our customer
database to verify instances where a
customer owns both a credit card and
transaction account and in those cases,
merging the customer’s two records into one.
When we check a customer’s ordinary ANZ
deposit account for benefit payments, we
rely on being able to identify correctly the
transaction codes relating to those benefit
payments. We are currently verifying those
codes with the Government to ensure our
processes are as accurate as possible and
that we are capturing all benefit types.
Next Steps
Our public commitment to responsible lending is a first step.
We are also looking at other ways we can reduce financial difficulty among ANZ
customers with responsible lending practices and by encouraging responsible
consumer behaviour.
1. Spotting Customers in Financial Difficulty
of their outstanding balance to an instalment
plan so they can pay the amount over a set
period of time and minimise the amount of
interest they pay.
We want to proactively offer our assistance
to customers in difficulty at an early stage,
before the problem becomes worse. The aim
is early intervention.
3. Transparency
We want to be as transparent as possible with
our customers about the cost of credit. This
involves keeping our disclosure documents
clear and concise and giving our customers
all the information and tools they need to
make the right decisions. We are currently
examining the best way to give customers
access to the information that matters to them,
when they need it. We could for instance,
provide an online calculator which customers
could use to find out how long it would take
to pay off a credit card balance, or to calculate
the monthly payments required to pay off a
credit card balance within a specific time frame.
When we know a customer is having trouble
paying their credit, there are a number of ways
we can help, including:
rescheduling repayments
offering a repayment holiday
amending payments dates so they coincide
with the customer’s pay dates
asking the customer whether they would like
to see a financial counsellor to help them sort
out their finances.
This assistance will be most effective when
it is offered before financial difficulty becomes
unmanageable. We are therefore looking at
how we can better use information we already
hold about our customers to identify those
who may be getting into difficulty.
We will be conducting research, using the
historical customer data we hold, to identify
the type of behaviour on credit cards and other
accounts which is statistically associated with
early stages of financial difficulty. If we
understand more about the leading indicators
of financial difficulty, we will be able to make
early and effective contact with our credit
card customers who show this behaviour.
4. Promoting financial literacy and inclusion
While we have decided to exclude the most
vulnerable customers from credit limit
increase offers, it is equally important that
we continue to invest in innovative financial
literacy and inclusion programs, particularly
for the most vulnerable groups in society.
For example:
2. New Products
We are also looking at new products which
may encourage responsible consumer
behaviour. For instance, a credit card which
allows the cardholders to transfer a portion
www.anz.com
important is the level of understanding of
the people who serve them. We are therefore
delivering Money Minded to our staff and
and our objective is that at least 10% of
staff will have completed the course by the
end of 2006.
We are continuing to expand Money Minded,
our adult financial education program for
people facing financial hardship, including
a free online version for our customers and
the community. Such education helps people
make better judgments and more informed
decisions about their money, and hopefully,
avoid financial overcommitment and difficulty.
The financial literacy of our customers and the
community is important to us, and equally
Last year we partnered with the Federal
Government to launch MoneyBusiness,
an Indigenous money management and
financial literacy program which is being
piloted in six remote sites in the Northern
Territory and Western Australia.
Our Saver Plus matched savings program
is continuing to assist low income families
reach a savings goal and establish a
long-term savings habit. We are expanding
the program to at least 18 communities in
partnership with a variety of community
organisations over the next two years.
We have also commenced a pilot ‘small loans’
program in partnership with the Brotherhood
of St Laurence, one of our largest community
partners. Progress Loans offers safe, fair and
affordable small amount loans to people on
low incomes.
For more information please contact:
Jane Nash
Head of Government
and Regulatory Affairs
ANZ
22/100 Queen Street
Melbourne VIC 3000
Email: [email protected]
or visit www.anz.com/cr