Credit-card horror

ON Sunday, we ran a special report on how credit-cardholders are vulnerable to abuse by third-party collectors hired by card companies.

In that report, we narrated the ordeal faced by simple folk—including a minimum wage-earner and a government employee—who despite their limited financial capacity easily gained access to credit cards by virtue of the aggressive marketing done by issuers.

Some of us are familiar with the pre-approved promos offered by issuers to lure every Tom, Dick and Harry (not to mention the Janes among us).

The tragedy here is that when it came time to collect their obligations, these simple folk—many of whom don’t have the financial sophistication to balance their checkbooks (if ever they had one)—are overwhelmed by liabilities that run to at least twice the amount they actually spent.

Cardholders belatedly realize the importance of the huge volume of minutiae that the issuer failed to mention at the time they were courting the customer. These are crucial details of the agreement between the issuer and the customer that were conveniently rendered in fine print.

Who’s to blame for this mess?

Obviously, the cardholder should have been more circumspect in charging their expenditures.

But it takes two to tango.

The problem with the way credit-card issuers dispense their service (if you may call it that) is they prey on a public that is ill prepared to handle the responsibilities of card use.

This is similar to the way lenders indiscriminately issued housing loans to Americans who can least afford additional debt—the so-called sub-prime crisis that engulfed the world in the worst economic slump since the Great Depression of the 1930s.

Needless to say, the Philippines’ credit-card business is treading the same downhill path that did in the American financial system, and with it, the global economy.

The poor state of consumer literacy in the Philippines is partly to blame, as the supposed market for financial services has failed to keep in step with the quick pace of financial product innovation—and we’re talking about a 1970s technology like the credit card!

In short, it’s a case of the cart getting way ahead of the horse.

But it’s also an issue of poor consumer protection, especially when it comes to the cases of harassment of cardholders by third-party collectors.

Card issuers—which in most cases are banks themselves—have found a way to circumvent a circular on proper collection procedures issued by the Bangko Sentral ng Pilipinas (BSP).

Unfortunately, a bill that would have strengthened consumer protection laws languished at the Senate, as the Committee on Banks had prioritized another pro-lender measure, the Credit Information System Act (CISA).

Despite its benefits, the CISA after all provides banks greater leverage over their borrower-customers.

After the holiday spending orgy, many cardholders would soon be deluged by bills, and failing to settle them, by demand letters sent by third-party collectors.

Thereafter, the harassment would start.

Debtors should settle their bills if they are to cut short this harrowing ordeal.

Beyond this—and with national elections just around the corner—cardholders would do themselves a favor if they check on who actually advanced the consumer’s cause in Congress and the government—as well as who failed them—and vote accordingly.

Credit-card issuers need not be the only ones taking stock after the holidays. –Manila Times