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22.09.2008Congratulations! You're pre-approved!

A landmark report commissioned by the Consumer Action Law Centre has exposed psychological tricks used to market credit card limit increases in unsolicited letters.


The psychological manipulation of consumers used by banks and other credit providers to persuade people to take up offers of higher credit card limits has been slammed by a consumer group as “reckless lending”.

A landmark report commissioned by the Consumer Action Law Centre has exposed psychological tricks used to market credit card limit increases in unsolicited letters.

It was found that lenders frame the letters in ways that make it likely that customers will not think too hard about taking on more debt and just accept the limit increase.

“For example, the letters trigger the natural human instinct to trust ‘experts’– in this case experts who have already determined you can afford a limit increase,” says Dr Paul Harrison, Senior Lecturer in consumer behaviour and marketing at Deakin University, and principal researcher of this report.

The letters also infer that this is a ‘limited’ offer, and make sure that customers feel like they already “own” the limit increase, triggering psychological factors such as scarcity, loss-aversion and the endowment effect.

The letters also use positive words and especially avoid the word ‘debt’.

Warnings are in much smaller print and can’t counter-act the strength of the other messages.

Ms Nicole Rich, Director – Policy & Campaigns, Consumer Action Law Centre says that lenders should be forced to implement some psychological “breaks” in the credit card limit increase process; for example, by making customers nominate their own choice of a higher limit and provide information about their current income and debts.

“It is also time to consider if unsolicited, pre-approved credit as a marketing strategy should be banned,” says Rich.

Money Confessions would love to hear your thoughts about these letters that offer an increase on credit limits. Click here to post your comments now.


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