Diane Bennett says banks shouldn’t be allowed to increase the limits on customers’ lines of credit without their permission, just as they can’t increase the limit on customers’ credit cards without express consent.
The Burlington, Ont., woman is speaking out after BMO repeatedly increased a joint line of credit she signed for with her husband, allowing him to rack up debt that she became responsible for after their divorce.
“I think it’s very irresponsible for the bank to put customers in debt that way,” says Bennett.
“They need to be called out for these blatant practices that make their customers suffer.”
Bennett holds the BMO agreement she co-signed for a line of credit for $15,000. She says the bank increased it to over $37,000 without her knowledge. (Evan Mitsui/CBC)
In 1999, the couple went to BMO, where Bennett’s husband was a customer, and co-signed an agreement for a $15,000 line of credit. Bennett says it was to help her husband’s business, and she believed it was paid off long before they divorced.
BMO increases limit 3 times
Bennett says that unbeknownst to her, the bank kept increasing the limit on the joint line of credit — and her husband kept tapping into those funds.
Documents obtained by Go Public show that although neither Bennett nor her husband requested a higher limit, BMO increased their line of credit the first time in 2007 to $20,000 from $15,000.
The next year, the bank increased the limit to $27,000.
Five years later, BMO boosted the limit to $37,000.
Complained to bank
After Bennett complained to BMO, the bank told her the limit for her joint line of credit was “automatically” increased.
Go Public asked the bank to explain why it was increased several times — or whether an employee benefited from doing it — but in an email, BMO spokesperson Paul Gammal didn’t address those questions.
“BMO complied with the applicable personal line of credit terms and legal requirements,” Gammal wrote.
Customer service employees from BMO and other big banks have told Go Public that when they increase customers’ lines of credit, they earn points towards sales targets, and that sales determine bonuses.
BMO wouldn’t comment on whether or not that happened each time someone raised the limit on Bennett’s line of credit.
‘Maximum’ not necessarily maximum
Bennett says she’s baffled that a line of credit agreement she signed, saying “the maximum amount available” to the couple would be $15,000, could be increased without her knowledge.
“To me, maximum means the top limit,” says Bennett. “That that is as high as it will ever go.”
A clause near the bottom of the contract says the bank “may amend or modify the provisions” of the agreement, but Bennett didn’t think that would have anything to do with the amount of debt she was agreeing to be responsible for.
All banks are allowed to increase the limits on lines of credit, as long as the higher limit is reflected on the customer’s bank statement.
Because her husband was the original BMO customer, Bennett says she didn’t see the monthly bank statements, and couldn’t check them online. Bennett’s now ex-husband did not return messages left by Go Public.
Legislation that came into effect on Jan. 1, 2010, requires banks to provide separate disclosure to each borrower, unless the borrowers consent to a single statement. However, the law was not made retroactive.
Bennett says she only learned the line of credit had been racked up by her husband when they were separating. (Evan Mitsui/CBC)
Consumers at risk
The banking regulator, the Financial Consumer Agency of Canada, recently investigated the sales practices for products and services at the country’s six big banks, a review prompted by Go Public’s banking investigation last spring.
That FCAC review led to the release of a report that found consumers could be at risk when signing up for products such as lines of credit, because “controls were not adequate to ensure that the written or verbal communication used to obtain consumer consent is clear, simple and not misleading.”
Go Public asked the federal Finance Ministry whether it would support introducing legislation to require prior consent before banks could increase customers’ lines of credit.
Finance Department spokesperson Jack Aubry said the federal government plans to introduce legislation to give the FCAC more powers, given that the regulator identified risks “regarding obtaining express consent in relation to all bank products and services.”
Random increases shouldn’t be allowed
A debt expert says banks should be required to obtain a customer’s written permission before increasing the limit on a line of credit.
“They should get the customer’s authorization first,” says Scott Hannah, president of the non-profit Credit Counselling Society.
“A similar practice is in place with credit cards and it seems to be working well for Canadians.” That requirement took effect in April 2011.
Scott Hannah, president of the Credit Counselling Society, says financial institutions should require authorization from customers before increasing lines of credit. (Christer Waara/CBC)
Hannah is concerned that Canadians are struggling with more debt than ever before.
“It’s not just mortgage debt,” says Hannah. “It’s lines of credit. It’s car loans. It’s credit card debt. All levels of government as well as other bodies outside of Canada have reported that Canadians in general have too much debt, and we have to reduce it.”
Go Public asked the umbrella organization for Canada’s big banks, the Canadian Bankers Association (CBA), whether it would support stricter protections for customers by requiring banks to obtain written authorization before increasing lines of credit.
In an email, CBA spokesperson Dave Bauer did not address that question, writing “Banks are federally regulated and strictly follow all legislative requirements.”
Tried to stop increases
It’s all particularly frustrating for Bennett because she says she tried to stop BMO from increasing the line of credit.
Bennett claims she only learned her line of credit was increasing around the time she and her husband were separating in 2012.
At that point, her $15,000 line of credit had been increased to $27,000 and was maxed out.
They handed out my money like it was water.-Diane Bennett, BMO customer
“When I learned this had happened, I was absolutely shocked,” says Bennett. “I was crying … It was devastating to me.”
She says she met with a BMO branch manager and wrote a letter in the manager’s office requesting that the line of credit be “red flagged” — preventing any further increases.
“I couldn’t believe that it even happened,” says Bennett. “That it was all done behind my back.”
But soon after, she says, the bank increased the limit again — this time to $37,000.
“That’s an increase of approximately 150 per cent from the original amount on the line of credit,” says Bennett. “They handed out my money like it was water.”
Banking ombudsman rejects complaint
Bennett filed a complaint with BMO, which pointed out it is allowed to increase credit limits.
She then complained to OBSI, the Ombudsman for Banking Services and Investments.
The OBSI rejected Bennett’s claim that she tried to freeze the line of credit at $27,000, saying the branch manager could not remember when she met with Bennett, the letter she wrote was undated, and notes in her file suggest the account was frozen after the limit had already reached $37,000.
Bennett filed unsuccessful complaints with BMO and the Ombudsman for Banking Services and Investments. (Evan Mitsui/CBC)
“I could’ve used that money for a lot of things — the mortgage on my home, feeding my children, everyday expenses,” says Bennett.
“I am the result of [BMO] having free reign to do whatever they choose as a banking institution goes. They put me in great debt over this.”
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