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Recently, the United States passed a credit card law
as part of its wide-ranging reforms in the finance industry. This
law is to curb abuses by banks who are the major credit card
issuers. Here in the Philippines, with our mass of consumers with
relatively low purchasing power, the menace of credit card debt and
collection needs an urgent solution. Truly, once in a while, the
issue bubbles up. When a debtor commits suicide to end the trouble
of repaying a sum of money, it is perhaps headline news. Then no
more.
What are the consumer concerns in
the credit card business? The high interest rate with some at 3.25
percent a month translates to 39 percent a year is a start. The
arguments are that such rates are necessary to off-set the losses
from defaulting borrowers. It is like subsidy from the good payers
to the bad ones.
The credit card application
clearly states, to which the credit card holder agrees, the rate of
interest chargeable and determinable by the banks. In law, citing
the fine print as the basis for charges can be arguable simply
because the consumer had no chance to negotiate the terms. He can
opt to look for a better deal. Alas, the practices and the contracts
all look the same.
Maybe the better option is not to
use a credit card at all. But the credit card is sometimes used as a
buffer or emergency fund when cash is not readily available. It is
conveniently easy to swipe whether need or want but immensely
difficult to get out when compounded interest and finance charges
set in.
In the US law, finance charges on
outstanding credit card balances are to be computed based on
purchases made in the current cycle rather than going back to the
previous billing cycle to calculate interest charges. Without this
law, consumers with pending amounts get charged double because
current purchases are also slapped with overdue charges like what we
have at present.
It is a monthly nightmare for
consumers to pay the bill on due date. For a single day of delay,
late charges are slapped. The new law requires that credit card
issuers give credit card holders a reasonable amount of time to make
the payments at least 21 days after they are mailed or delivered. No
late fees are chargeable when payments fall due on weekends,
holidays or when the card issuer is closed for business.
Consumers are given the option to
make the automatic debits to pay from their linked bank accounts.
This is not a problem for those with ready funds. Even then, the
burden is now with the credit card holder to verify the entries in
the bill after the deduction is made.
One plainly sensible change is
that highest interest balances should be paid first. When consumers
have different interest rates for different types of purchases
(i.e., cash advances, regular purchases, balance transfers or ATM
withdrawals), payments in excess of the minimum amount due must go
to balances with higher interest rates first. This is only to comply
with the provisions in our Civil Code. Are our credit card issuers
doing this? The current practice is to apply all amounts over the
minimum monthly payments to the lowest-interest balances first.
Then there is the minimum
payment. Many consumers pay the bare minimum because that is what is
affordable. It “maximises” the credit on the card and exposes
the consumer to the rates and charges previously mentioned. The new
US law requires credit card issuers to inform the holder the
consequences of making only minimum payments each month, how long it
will take to pay off the entire balance if only the minimum monthly
payment is made. Issuers must provide information on how much users
must pay each month if they want to pay off their balances within
12, 24 or 36 months, including the amount of interest.
We have the Truth-in-Lending Act,
which is to make financial transactions more transparent and
understandable by the debtors. Is it being applied to credit card
transactions?
Finally, when the debtor sinks
terribly into debt and is unable to pay, the collection malpractices
come into play. The many complaints and problems are more than
enough for our legislators to pass our own credit card law.
mabinihall@gmail.com
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