Credit card law

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. –Geronimo L. Sy, Manila Times

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