Is there no limit to where Emirates NBD will go?

How my bank tried to put me in a financially risky position by tripling my credit card limit without even asking me, writes Courtney Trenwith

I recently received a text message from my bank that literally made me gasp. Emirates NBD was informing me that my credit card limit would automatically be almost tripled – without seeking my approval.

Yes, almost tripled and without any consultation to see if I a) wanted such a limit, b) needed such a limit, and c) could afford such a limit.

The bank then suggested that if I didn’t like the change they were going to make to my financial situation I could send them a text message. No questions, just a blunt statement.

The message read: “The Credit Limit on your card ending 2657 will be increased to AED 58500. If you do not want a limit increase, please SMS NOCLI to 4456 by 06 July 2014”.

My limit at the time was AED 20000. So they were planning to increase it by 192.5 percent.

Upon reading the fine print of my credit card contract, I discovered the bank gave itself “absolute discretion” to set my limit and that it only “may notify” me. So it was some small consolation I guess that they bothered to notify me at all of the credit boost they were awarding me.

“The Bank reserves the right to reduce or change the Card Credit Limit at any time without notifying the Cardholder”, the rest of clause 2.3 states.

That is an absolutely irresponsible policy I believe.

Since obtaining my card about 18 months ago, I have never reached my limit, nor had difficulty paying off my bill on time – which had I not done so would have been indications that I might need or want a credit limit, although asking would still be the polite and responsible way of conducting business.

The situation is made even more staggering when you consider Dubai’s history with extravagant personal debt levels.

Consumer debt in the UAE reached $95,000 per household, or $114bn in total, according a Strategic Analysis study published in July last year.

The ratio of debt-to-income was far greater than the majority of European countries and the US.

Almost half of those polled also said their monthly income was not enough to cover their repayment obligations, with 60 percent saying a quarter or more of their salary was spent on paying back debts.

In 2010, reports showed UAE debt levels had soared by 10 times in the past decade.

The reason? Lax lending policies.

It might be legal, but decisions by banks such as that by Emirates NBD in my case this week, only serve to entice customers to swipe their card more often, fuelling what is already an absurd level of debt for a country of less than 10 million people.

Receiving a text message letting you know you will soon be able to put almost three times as much on your credit card is the same as saying ‘it’s okay to spend with money that doesn’t exist’.

Well it’s not okay, and a bank should not be subtly enticing customers into such risk. At the very least, it should have called me to ask if I wanted the increase – and only after having done their own due diligence to make sure I could afford to repay such a high debt.

I asked Emirates NBD on Tuesday afternoon what due diligence they took before trying to automatically almost triple my credit card limit and why they believe it’s okay to do so without asking me.

I’m awaiting a reply. If and when I receive it, it will be posted here.

 

*RESPONSE FROM SUVO SARKAR, GM, RETAIL BANKING & WEALTH MANAGEMENT, EMIRATES NBD:

Customer convenience and satisfaction is of paramount importance to Emirates NBD, and we are always on the lookout for ways to provide additional value to our customers in terms of products and services.

Credit Limit Increase is one of the tools we use today to understand and reward positive customer behavior. This facility is offered to customers based on their credit card performance and/or long standing relationship with the bank.  The customer’s credit history with the bank along with the spending and repayment patterns are considered in great detail, before the credit limit increase on the card is initiated.

At Emirates NBD, we follow a well-defined approach to ensure that the highest level of diligence is rendered while choosing these select customers. The credit limit increase is also effected during specific periods like pre-summer travel, or at the advent of festive seasons like Eid or New Year, during which time customers are interested to avail of some incremental borrowings to take care of their increased spends.

The offer of increase in credit limit is therefore seen by customers as a positive move. Consistent customer feedback also suggests that they often look forward to receiving the benefit of an increased credit limit based on factors like inflation, salary increments, etc.

Once the due diligence is completed and the decision taken to offer a customer increased credit limit, the customer is informed via an SMS message about the line increase. The message also offers customers the option to opt out within a limited period, in case they do not wish to take advantage of the same.

In addition to this notification, the available credit limit is also stated in the SMS notification that customers receive on completion of every card transaction, enabling them to conveniently track their card spends. Additionally, the credit limit available to the customer is stated clearly in the credit card statement that is sent to the customer each month.

Emirates NBD is aware that customers might be travelling, or may not have seen the SMS notification. Hence, we do acknowledge requests to downgrade limit to original levels, even at a later stage. Once the customer informs the bank that he/she does not need a credit limit increase or needs a lesser increase, we promptly action the same.

Rewarding customers with a credit limit increase on the basis of previous customer behavior and a positive credit history of spend patterns, is a global practice today in all leading banks. We believe that this increase in credit limit does not put the customer at unnecessary financial risk, because it is a considered decision and not offered to all customers.

Emirates NBD customers can also proactively seek an increase in their credit limit through approaching the bank directly with relevant supporting income documents for us to evaluate and approve the same.

 

 

 

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Please post responsibly. Commenter Rules

Posted by: KwJ

Funny enough, I have been requesting my bank for an increase in credit limit since a couple of years. After actually going into a branch and launching a formal application to raise my limit to the maximum possible allowed for me, the limit was raised from AED 15,000 to AED 16,500! Despite the fact that I normally pay off my credit card transactions once a week and I only use it for the miles :)

Posted by: WHJ

@KwJ. I wouldn't be misled by the misguided advice mentioned here below. Skipping payments will undermine your credit worthiness.
Cynicism is not wisdom.

Posted by: MT3

Decisions on credit card limits are taken primarily by algorythms that analyse behaviour and seek to maximise the proftibility of customers (or more accurately the portfolio as a whole). One parameter is, of course, to do with the creditworthiness of the customer but how it is weighted depends upon the bank's risk appetite and typically decisionning is bias more toward revenue than risk factors. In your case it is possible you are too responsible a consumer and they simply don't make enough money out of you and their algorthym tells them that even if they doubled your credit limit they still wouldn't make much money out of you, while potentially tieing up more capital, so why bother. Try skipping a couple of payments and the chances you'll get a limit increase will be significantly higher. They increase credit limits for one reason alone - to make more money, not to respond to customer needs.

Posted by: Ronald

A friend who went back to the US five years ago leaving a huge Citi credit card bill in Dubai is still being harassed by Karama debt collectors who don't seem to understand that the moment the plane door closes the debt is effectively proscribed, unless one wants to venture back to the UAE. And the reason the debt was so high was the credit limit was constantly being raised.

Posted by: nice

The cost of lending to everyone goes up due to lax lending policies - as banks have to factor in failure to pay into their costs to other customers of borrowing. It is in the interests of all customers that the banks take a responsible view so that they have low levels of default and can price their debt at acceptable levels. The article makes a good point.

I am sick of banks and my credit card companies phoning me (despite me asking them not to) offering me loans and all sorts. I ask you not to call. But you call. Perhaps a complaint the central bank would work...but unlikely as they seem also uninterested in ensuring that consumer debt is kept at manageable levels

Posted by: Simon

The banks and the customers should be blamed, the banks for miss selling and for distorting and twisting the banking rules and regulations to serve their own selfish motives and the customers for being so gullible. I have been a victim of miss selling and the only remedial measure was by naming and shaming them in the press, nothing else works.

Posted by: WHJ

Yes..naughty banks!

Posted by: WHJ

@Courtney. This may come as a surprise to you but banks thrive on debt. Interest and fees are their main source of income and they are always looking for ways to increase their revenue stream. As such, one shouldn't be surprised to see such methods that are designed to help them grow their business. However, it is our responsibility as mature consumers to resist the temptation of easy credit and decline the offer. At the end of the day, the bank cannot force you to accept the limit increase. Just say no!
A couple of years ago Amex upgraded me because I was a "good" customer and I deserved to "be able to spend more".

Posted by: WHJ

Indeed Telco, your point is well taken. In your view, the effect on the economy of increasing credit card limits (which, by the way, is the bone that the author is picking with ENBD and the focal point of the article) compared to subprime mortgage loans packaged by investment bankers into mortgage-backed securities is the same. I see you're well on top of the financial affairs of the world.
Yes, I should not use words you do not fully understand.

Posted by: WHJ

@Telco. Interesting perspective. Let's see...a major financial crises triggered by subprime mortgage loans packaged into mortgage-backed securities on one hand, and an increase in credit card limits on the other....yes, I see your point! Ingenious as always.

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