A Commonwealth Bank advertising campaign urging young people to take out a credit card instead of borrowing from the “bank of mum and dad” has been slammed as “unethical”.
The ad, for CommBank’s ‘low interest’ Essentials credit card, comes less than three months after CBA fronted the banking royal commission to face questioning about its credit card lending.
One of the TV ads, which you can watch below, encourages young people to take out a credit card to avoid having to pretend to laugh at dad’s bad jokes in exchange for a loan.
It finishes with the tagline, “For when you’ve outgrown the bank of mum and dad.”
Another ad uses a similar motif, but replaces laughing at dad’s bad jokes with eating mum’s bad cooking.
A third billboard ad states simply: “Because the Bank of Mum and Dad will probably give you a lecture and you had enough of those at uni.”
Well here's a sign for the times. An ad encouraging people who have outgrown the "bank of Mum and Dad" to apply for a credit card. pic.twitter.com/VOyZID5qzl
— Dr Julia Baird (@bairdjulia) May 25, 2018
What is CBA flogging?
The Essentials credit card is a no-frills, low-interest credit card, charging users 9.9 per cent purchase rate when they fail to pay back their monthly bill in full.
Given some credit cards have purchase rates of upwards of 20 per cent, this makes the Essentials credit card comparatively cheap.
A number of other features, including a maximum credit limit of $3000, a block on cash transfers, and a lower fee if you set up a direct debit, also make this a low-cost credit card.
A spokesperson for CBA said these features made it suitable to young people on lower incomes.
“We believe it’s really important to help young adults develop good financial habits, such as budgeting and managing their money wisely. As they move into full-time employment, their spending and payment habits change and this includes using credit cards,” the spokesperson said.
But Katherine Temple, senior policy officer at the Consumer Action Law Centre, did not accept the CBA’s claims, saying a credit card was not the solution for young people with money troubles.
She said that it would encourage young people with limited financial literacy to take out loans they could not afford, potentially sending them into a “debt trap” that could last years.
“I think this is an example of unethical marketing,” she told The New Daily.
“Banks are setting up young people to fail financially. The long-term ramifications of being over-indebted at such a young age could be catastrophic.”
She compared the ad to CBA’s Dollarmites program, which she said was pitched as a way to teach financial literacy to children, but was really a way of building a huge database.
“For young people, if they are having trouble making ends meet a credit card is not the answer. It’s being sold as a way to become financially independent, when really it’s a debt trap.”
She said 9.9 per cent was “not a small amount of interest, especially if you’re on a small income”.
“It’s not technically against the law, but banks need to step up and try and improve people’s financially wellbeing. And this credit card is not improving anyone’s financial wellbeing.”
She said there was a “perverse incentive” for banks to target people “living on the edge” because they are most likely to fall behind on their repayments, and will therefore pay the high rate of interest.
This makes financially vulnerable people “the most profitable” type of credit card customer.
“It’s not uncommon for us to get calls from people who have been paying off credit card debts for years and years,” Ms Temple said.
Last year Mozo conducted a study on the role of the “bank of mum and dad” in the mortgage market.
It found parents were the biggest lenders in Australia after the big four banks.
But unlike the banks, not only did the vast majority of parents not charge any interest, 67 per cent did not even expect their children to pay back the principal.
As the pie chart below shows, only 0.6 per cent expected their children to repay the loan in full with interest.