‘Loose’ rules main cause of credit-card defaults-SEC

The Securities and Exchange Commission (SEC) is convinced that loose-credit standards rather than the absence of a credit-rating agency are the driving force behind the high incidence of loan defaults among credit-card borrowers.

SEC Chairman and former Monetary Board secretary Fe Barin stressed this point in an interview late Wednesdy at the InterContinental Hotel.

The credit card industry’s penchant for charging card borrowers “an arm and leg” for even the most innocent of purchases has raised the hackless of legislators, as Sen. Ramon Revilla has proposed capping the charhes to no more than 1 percent a month.

But according to Barin, the continued lack of implementation of the Credit Information System Act (Cisa) should not be blamed for the high interest charges in hapless credit-card users.

“I beg to disagree. The reason for the high charges is because credit-card issuers are too liberal and indiscriminate in the granting of cards,” Barin said.

Most banks and financial analysts and observers blame the high interest-rate regime on the SEC’s continued failure to fully implement the Cisa, which became the law in October 2008.

They argue credit-card rates will fall dramatically once the credit history of anyone wanting the privilege to buy services or goods on credit is instantaneously available.

Right now, credit-card issuers deliberately jack up interest charges to compensate for double-digit default rates and still make a respectable margin for transactions essentially considered “clean” or unsecured loans.

Barin would not buy that argument, however.

According to her, the Cisa was “designed to house the data for credit information. It is still incumbent upon the credit institution to decide on whether credit is granted.”

“I am saying the Cisa may not be the reason for may help in the sense that we now have a data bank and there is no need anymore to physically check on the credit history of borrowers. But again, the Cisa may not automatically result in lower interest rates,” Barin said. – Jun Vallecera, Businessmirror