Credit card holders cry out for reforms

Last week the National Bureau of Investigation filed a charge of credit fraud against a dentist who allegedly booked P1.2 million on her patient’s credit card without his knowledge. The card holder questioned six transactions which were charged to his card, claiming that he never used the card on the day the transactions were supposedly carried out and that the signatures on the charge slips were not his.

In March 2008, a good friend, his wife and two sons visited Macau. While doing the sights, he discovered that his wallet was missing and as a result, he lost cash, credit cards and other papers. He immediately reported the loss to the card-issuing company and requested that transactions on that day not be paid since they were unauthorized and fraudulent. He was informed that certain transactions had been made with the stolen card—all in the space of less than one hour.

He proceeded to the stores mentioned by the credit card company to examine the charge slips and found out that the signatures did not even come close to the signature on his card—they were glaringly different. Obviously, the supervisor of the store did not bother to check the signature on the card and the charge slips. Or, there was collusion involving the store and the illegal card-user.

Now comes the shocker! After a while, he received his monthly statement of account from the card company and guess what? He was being made to pay for the fraudulent transactions in Macau, in spite of the notices which he gave the company on his stolen card. Month after month, with interest charges added, the bill ballooned to quite an amount, and soon a law firm entered the picture, demanding not just payment of the debt but in addition, demanding 25 percent of the account due for attorneys’ fees and another 25 percent as collection charges.

Just what does a credit card company expect from its card holders? You lose your card. You report it immediately and ask that any transactions made be held in abeyance. You present charge slips that indicate a completely different signature from that of the card holder. And they still want you to pay for the fraudulent transaction which has cost you much inconvenience and embarrassment!

If one is rich and can hire a high-powered law firm to represent you in the legal hassles that accompany this type of problem, you would probably consider the whole thing merely a pain in the ass. But if you’re an average middle-class citizen, what can you do to fight back?

Last May, in the midst of one of the worst recessions in the United States, consumer protection continued to be foremost in the minds of the Congress. President Barack Obama signed into law the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009. The purpose of the legislation is to provide consumer protection by putting an end to unfair rate hikes and hidden fees.

Some of the key elements of the new law are as follows:

1. Bans unfair rate increases—financial institutions will no longer raise rates unfairly and consumers will have confidence that the interest rates on their existing balances will not be hiked.

Bans retroactive rate increases—bans rate increases on existing balances due to “any time, any reason,” or “universal default,” and severely restricts retroactive rate increases due to late payment.

First year protection—contract terms must be clearly spelled out and stable for the entirety of the first year.

2. Bans unfair fee traps

Ends late fee traps—institutions will have to give card holders a reasonable time to pay the monthly bill; at least, 21 calendar days from time of mailing. The Act also ends late fee traps such as weekend deadlines, due dates that change each month and deadlines that fall in the middle of the day.

Enforces fair interest calculation—credit card companies will be required to apply excess payments to the highest interest balance first, as consumers expect them to do. The Act also ends the confusing and unfair practice by which issuers use the balance in a previous month to calculate interest charges on the current month, so-called “double cycle” billing.

3. Plain Sight/Plain Language disclosures—credit card contract terms will be disclosed in language consumers can see and understand so they can avoid unnecessary costs and manage their finances.

Plain Language in Plain Sight—creditors will give consumers clear disclosures of account terms before consumers open an account and clear statements of the activity on consumers’ accounts afterwards.

Real information about the financial consequences of decisions—issuers will be required to show the consequences to consumers of their credit decisions. Issuers will need to display in periodic statements how long it would take to pay off the existing balance—and the total interest cost—if the consumer paid only the minimum due.

4. Credit card for young people at universities—the Act contains protection for college students and young adults, including a requirement that card issuers and universities disclose agreements with respect to the marketing or distribution of credit cards to students.

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We need similar reforms in credit card operations to protect the card holder from all forms of fraud and abusive and deceptive practices. We need legislation to promote simplicity, require transparency and ensure accountability so as to strengthen consumer protection. Sen. Miriam Santiago has already filed bills prohibiting the delivery of credit card application forms to people under 25 years of age, and penalizes retailers imposing two sets of prices on cash and credit card purchases. These are steps in the right direction. –Ramon J. Farolan, Philippine Daily Inquirer