Two months later, it offered an unsolicited increase in her credit card limit to $13,000. She felt she had to accept the offer to gain time to sort out her debt repayment. The next year, the bank offered another unsolicited pre-approved credit card limit increase, to $15,500, which she accepted for the same reason.

A year on and still struggling with her debt, Sarah complained to the bank about the card limit increases. She agreed she should have to repay some of the debt, but she felt the bank should bear some responsibility because it offered limit increases without verifying she could repay more debt, and also while knowing she was in financial difficulties.

The bank offered to write off some of her debt at a favourable interest rate. Sarah did not accept the offer, but did agree to make $40 weekly repayments.

Our investigation

Sarah complained to us later on. She wanted her bank to:

• reduce the credit card debt to the level it had been at when she asked for a debt consolidation, less the $40 repayments she had been making
• charge no more interest or annual fees
• continue to accept $40 weekly repayments until the debt was repaid in full.

Sarah's complaint amounted to an allegation of irresponsible lending, that is, the bank knew, or should have known, she could not afford repayments. The Code of Banking Practice says a bank should offer or increase lending only if the information in its possession leads it to believe a customer will be able to meet the terms of the lending.

It was clear to us the bank knew of her financial difficulties and on two occasions offered her extra credit, knowing full well she lacked the means to service any extra debt.

In the event of such a breach of the code, we usually recommend that the bank writes off all interest and charges, and agrees to an affordable repayment schedule. But if there is no reasonable prospect of the complainant being able to repay the balance in full, we may recommend the bank write off part or all of the debt.

In this case, however, we did not have to make either recommendation. During discussions we facilitated between the two sides, the bank agreed to all of Sarah's requests.

Outcome

The complaint was settled on that basis.