Card companies: Use credit wisely

Shaken by last year’s roof-high floods from storm Ondoy, Manilans panic at mere pitter-patter of rain. After losing many belongings, they seem to have not learned a lesson. They misconstrue that the downpour in only six hours of a month’s usual rainfall caused the deluge. Forgotten is that intact watersheds hold back torrents. Too, that flood readily recedes if waterways are clear of garbage and illegal constructions.

The result of the unlearned lesson is the unsolved problem. Rains are upon the metropolis again. But forest denudation goes on; plastic trash and canal obstructions remain, threatening more deaths and destruction. It’s this twin problem that should panic Manilans into action.

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Is your credit card overcharging you, I asked Monday? Yes, readers cried in a flood of e-mails, on learning that the Supreme Court allows only one percent interest and one percent penalty per month. No, the Credit Card Association of the Philippines insists, in this rejoinder to my points:

• I wrote: “Banks and card companies claim that the decision applies only case-to-case. Yet there is no other way to interpret it other than that it covers all cases of overcharging of cardholders. To (quote), the SC ‘had affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are excessive, iniquitous, unconscionable and exorbitant.’” (See http://sc.judiciary.gov.ph/jurisprudence/2009/september2009/175490.htm)

CCAP replies: “The wording of Justice Velasco indicates that it is indeed case-to-case: ‘In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of each case, since what may be iniquitous and unconscionable in one may be totally just and equitable in another.’ Given those wordings, the SC did not direct the card issuer to lower interest and penalty rates for all customers, and it did not direct all card companies to lower interest and penalty rates as a whole. The SC directed the card issuer to lower interest and penalties only in this individual case, based on merits argued by complainant. An across-the-board directive to lower interest and penalties of credit cards cannot be implied from the decision because the SC does not have power to fix interest rates. If it did, this would amount to judicial legislation, which is prohibited under the Constitution’s separation of powers. From jurisprudence and law, the most that the SC can do is to equitably reduce interest and penalties case-to-case, if the circumstances were identical to the complainant’s case.”

• I wrote: “Neither the Bangko Sentral nor its policy-making Monetary Board has moved to enforce the SC ruling.”

The CCAP retorts: “Here is where the fine line between ‘ruling’ and ‘law’ becomes relevant. There is nothing to enforce, since no law has been passed. All the SC ruling is — and ever will be — is a precedent: jurisprudence for future cases of similar nature. If someone wants the SC to lower penalty rates, he must enter into litigation and hope that his case is as compelling as the complainant’s in question. If people want something to compel banks and card companies to charge a uniform rate, then legislators must enact a law. (They should also legislate against users who avail of credit cards and never pay their bill. The high level of write-offs means that responsible, disciplined card users are forced to subsidize the unchecked behavior of bad customers.) If everyone paid their bills on time and used credit prudently, the card issuer’s risk would be greatly reduced, and rates would surely follow. Perhaps we don’t need a new law as much as we need restraint and responsibility.”

• I wrote: “Banks and card companies continue to rake in billions of pesos in unconscionable, exorbitant and excessive fees.”

CCAP claims: “Studies by the Lafferty Group show that card companies in the Philippines have an average profitability of 4.9%, much lower compared to neighbor-countries Malaysia, Singapore, and Taiwan. Too, the average profit per card is $19 (P865). A billing of approximately P45,000 usually has an unpaid balance of around P20,000; that’s only a 45% window for the issuing bank to earn money. In effect, the rest of the 55% is a free loan. If we apply cost of funds of 7.5% (last year’s average 90-day Manila reference rate), and loss ratio of 12% (the amount of non-performing credit card loans), the profit per card is drastically reduced to $4 (P185). Conversely, the studies show that it takes an upfront investment of around $70 million (for point-of-sale terminals, communications infrastructure, IT platforms, etc.) to operate a credit card business in the Philippines. One can just imagine how long it takes to recoup that investment, given an average profit per card of P185. Contrary to widespread belief, card companies — not the users — are getting the short end of the stick.”

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Really? As of June 2010, past-due receivables on credit cards totaled P18 billion. Deduct from that the supposed 12% loss ratio, then multiply it by the usual 3.5 percent interest-plus-penalty that card issuers charge, and they still rake in P554.4 million — a month.

Since the BSP, MB, and Dept. of Trade and Industry aren’t shielding them from overcharging, consumers can take up the CCAP’s challenge: get Congress to pass a law. They can also seek, in class action, a clarification if the Sept. 2009 SC ruling is case-to-case or all encompassing. –Jarius Bondoc (The Philippine Star)