Banks bring fast money straight to your doorstep

Recipients of loan pre-approval letters or telephone calls from financial institutions should, if they are interested, always check what offers are vailable elsewhere before making a commitment, say the experts

Modern life is hectic, or so the average advertising campaign would have us believe. Buy X to calm down, buy Y to save time, buy Z to help you to pack more into your day: the variations on the fast-living theme are seemingly endless.

Unsurprisingly, the messages coming from the world of financial services paint a similar picture. Fast money is at our fingertips, whether we like it or not.

The pre-approved personal loan is a case in point. The thinking behind this particular creature is basic enough: life is so busy that consumers barely have time to write their names on a loan form, never mind shop around for a more attractive box to tick. If they can be pre-approved for a loan before they even think of asking for one, the procedure of lending will ultimately be simplified for both bank and customer.

This is certainly the attitude of Bank of Ireland, where pre-approved personal loans often form a central part of marketing campaigns. Just last month, motor loans were the subject of one such campaign, a move designed to coincide with the usual January rush in the new car market.

The result in this case was that a selection of the bank's current account customers received a letter informing them that if they were thinking of buying a car and "would like to have the extra flexibility and bargaining power of a cash buyer", this was their lucky day. "We have already approved a motor loan for you," read the letter. Customers were informed that they could check the amount available to them by telephone, after which they could opt to receive a standard credit agreement to be signed.

One scribble later, and the money would be transferred into their account. What could be simpler? Just in case that seemed like too much effort, the customer was informed that if they had not replied to the offer within "a few days", the bank might call to remind them of what they were missing.

The idea of pre-approval is not a novel one, with American consumers, for example, long being familiar with the process. In the Republic, however, Bank of Ireland is unusual in choosing to target its customers in this way. Most of the other financial institutions active in the personal loan market choose to write to customers informing them of the options available should they think of applying for a loan, but stop short of pre-approving them for the facility. The distinction is small but important, since it places an additional step between a consumer and the cash that he or she could access.

Mr Paul Gurhy, head of marketing for consumer lending with Bank of Ireland, says the idea of pre-approval first arose for the bank about five or six years ago. Customers were often fearful of seeking loans, he says, and, when they did do so, sometimes felt their financial track record was not being taken into account. Pre-approval is the obvious response to both of these concerns, according to Mr Gurhy.

"Customers don't have as much time for going into a branch as they used to," he says. "Their lifestyles just don't give them that time." Bank of Ireland applies a fixed set of criteria on the pre-approval front, with the result that not every current account customer will be the recipient of the kind of letter detailed above.

"We use a technique that looks at activity on a current account: amounts going in and amounts going out over a period, the frequency of lodgements, what other repayments might be ongoing. From that information, we're able to build a profile and a net disposable amount. Then we're able to tailor a loan amount."

The approach used by Bank of Ireland revolves around the simple principle of getting in first. If a customer is thinking of applying for a loan, the bank wants to be uppermost in their mind as the source of that cash. If this is not the case, "they'll get the funds somewhere else", says Mr Gurhy.

He dismisses the idea that the letters and calls that form part of the bank's pre-approval campaigns could constitute intrusion in the minds of the customers who receive them.

"People are far more financially astute and aware than they were 10 or 15 years ago," he says. Research conducted by the bank when it first began pre-approving loans shows, according to Mr Gurhy, that less than 1 per cent of the pre-approved customers were unhappy with the idea. More than 70 per cent said they were "delighted".

The other main banks have so far chosen to avoid the pre-approval route for various reasons. Some have chosen to target customers with information on lending rather than outright loan approval, a strategy also followed by finance companies such as GE Capital Woodchester.

While banks will normally only contact existing customers with loan information, these other organisations may decide to go outside these parameters by purchasing "lists" of names and addresses from external sources. The names on these lists will then be targeted by marketing campaigns outlining product offerings.

Such campaigns must be conducted within the boundaries of data protection regulations and if an offer recipient has concerns in this regard, he or she should contact the Data Protection Commissioner.

Back with banks, AIB has chosen the targeted information option largely because the bank considers pre-approval to be too limiting. "We don't do it \ and we avoid doing it," says Mr Shane O'Neill in AIB's personal banking marketing department. "It's something that we have looked at and we've made an informed decision not to do it.

"A customer could have a genuine need for €8,000 \ and we'd write to them offering €5,000. Then they won't come to us asking for more. Everybody's very individual and it depends on the timing."

AIB may, like Bank of Ireland, follow up its general loan letter with a telephone call. Mr O'Neill says customers "do actually appreciate" this kind of attention.

At Ulster Bank, pre-approval is not part of current marketing strategies either, although a spokesman said it may be an option in the future. "We haven't done pre-approved loans, but certainly it's something we'd be looking at," says Mr David Beattie, manager of retail marketing at the bank. "Banking and marketing have to be completely integrated these days." Mr Beattie says, however, that the "ethical or reputational side" of pre-approval would be a key consideration for Ulster Bank in adopting such a policy.

While there is little question of any financial institution pre-approving a loan for a financially-vulnerable customer - "We take great care not to offer it to people who can't afford it," says Mr Gurhy - this "ethical" issue is still an important one. Does pre-approval make borrowing dangerously easy?

"It does require an element of caution," says Mr Dermot Jewell, chief executive of the Consumers' Association. "Why? Because, for example, it's a first signal that might induce you to take on an undertaking that you might not have considered before. You also eliminate choice because you don't bother to shop around and perhaps save yourself some money on that same loan."

The recipients of pre-approval letters or telephone calls should, if they are interested in the loan, always look elsewhere first, says Mr Jewell. If they are not interested and object to receiving the out-of-the-blue information in the first place, they should contact the bank and inform them of this fact. "You're made to stand up for your rights," he says.