Lenders appear to have learned nothing from the financial crisis - and neither have we. New research has revealed that credit card providers are back to their old tricks - luring people into borrowing more money than they intended to. And borrowers are falling for it all over again.
The trick in question is to quietly bump up the credit limit on a credit card. Research by uSwitch.com found that 61% of people have had their credit limit increased without them requesting it. As a result, 24% (4.5 million people) have seen their spending and borrowing spiral. And yet 42% have no plan in place for how they are going to pay off the extra borrowing.
The average amount the credit limit is lifted by is £1,300, but there are plenty of examples where credit card companies boost the borrowing limit dramatically. More than one in ten have had £2,500 added to their credit limit unexpectedly.
More than one in ten weren't aware their limit had increased, and 25% only found out when they checked their online statement.
It's particularly irresponsible for lenders to take this stealthy approach when borrowing is booming again. It is already in excess of the borrowing levels we saw when the financial crisis hit. It means we are more vulnerable than ever to a change in circumstances, a move in interest rates, or a more general financial crisis.
You can refuse a credit limit rise - as long as you contact your provider within 30 days. Unfortunately, the uSwitch research found that 24% of people took on the extra credit because they thought it was too much hassle to cancel it.
The Financial Conduct Authority is currently conducting a market study into credit cards, and uSwitch is calling on the regulator to ban these stealthy credit limit rises - unless the customer specifically asks for them.
Tashema Jackson, money expert at uSwitch.com, says: "Consent, and ultimately control over their finances, need to be in the hands of consumers. Too many are in the dark about how they need to opt out of increases, or fail to do so because of the effort it will take them to contact their provider. We urge the FCA to introduce a consumer opt-in requirement for credit limit increases."
What can you do?
In the interim, it's vital that we stay on top of borrowing. If your credit card company increases your credit limit, think carefully about whether it makes sense for you to be borrowing more. If you have an unexpected outlay, can borrow at 0%, and can repay before the interest rate kicks in, it may be a perfectly sensible way to address your cash flow problems.
On the other hand, if your debts are creeping up, you're paying a fortune in interest, and you don't know how you will be able to afford to repay, then the last thing you need is a higher credit limit.
If you don't want the extra borrowing, the safest approach is to contact your provider within 30 days and turn it down. Jackson adds: "If customers miss the 30 day window to opt out, they can still contact their provider and try to reduce their limit."