Law vs. harassment of debtors must be passed

Five months ago, Sen. Miriam Defensor Santiago proposed the Prohibiting Credit Card Debt-Collection Harassment bill aimed at “addressing numerous complaints on how credit card companies, through their counsels or collecting agencies, use unfair collection practices that range from harassment to borderline illegal.”

In her explanatory note, Santiago stressed that “although we recognize their [creditors] right to the amount that is due them, in the enforcement of this right they [creditors] must observe good faith and reasonable conduct.”

The lawmaker pointed out that this bill is in line with Article 19 of the Civil Code of the Philippines, which states that: “Every person must, in the exercise of his rights and in performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.”

Unfortunately, Santiago’s colleagues killed her attempt to penalize the unfair collection practices of credit card companies. Her bill was referred to the pertinent committees.

Then, the Committee on Banks, Financial Institutions and Currencies and the Committee on Trade and Commerce came up with Senate Bill 3534, a consolidation of a total of 11 bills regarding credit card transactions. Senate Bill 3534’s title is An Act Governing Credit Card and Other Access Device Transactions and Providing Penalties Therefor.

The bill targets to simplify, clarify and modernize the laws governing credit transactions for the development of fair and economically sound consumer practices. Senate Bill 3534 also recognizes the lack of awareness of the consumers of the true cost of credit to the user.

Thus, it also aims to protect consumers from unreasonable interest rates and surcharges, and hidden charges on credit card transactions.

But Senate Bill 3534, which is now pending on its second reading left the harassment issue behind. Thus, this omission gave rise to different speculations, which prompted strong lobbying of some industry leaders against anti-harassment laws, contending that a law like the one proposed by Santiago would encourage habitual defaulters.

Poor people own cards

The latest data from the National Statistics Office (NSO) show that a Filipino family earns an average income of P181,000 a year, 86 percent (P156,000) of which is expenditure. This P156,000 is mainly spent to food, house rental, transport and communication, utilities and education.

Princess Adaro, 31, a minimum wage earner obtained her credit card easily. She only paid a minimum monthly charge of P500 a month in the first year. After taking maximum advantage of her credit limit of P10,000, she stopped paying the minimum monthly charge in the succeeding year.

”I asked the bank agent whether they could cut my credit line already so that my debt would no longer grow, and in return, I will be paying my outstanding balance in an installment basis,” Adaro said.

To her dismay, the bank did not agree, and ordered her to first pay everything in its entirety before any new arrangement could be made. In one year of not paying, the P10,000 she owed went up to P14,556 and immediately swelled to over P20,000.

“Madalas, naninigaw sila at pagbabantaan ka ng ‘Alam mo ba kung ano’ng mangyayari sayo kapag hindi ka nagbayad?’ Pati sa kamag-anak at katrabaho ipapaalam pa na malaki na raw ang utang ko at hindi marunong magbayad. At nag sasabi sila baka kamo hindi ko alam kung san raw ako pupulutin kung hindi ako nagbayad [Oftentimes, they would shout at me and threaten, ‘Do you have an idea of what is bound to happen to you when you do not pay your debt?’ There are even times they would inform my co-workers and relatives about my debt and how I don’t know how to pay. Telling them where my body would end up if I am no able to pay].”

”Imbis na makatulong ang credit card sa akin, lalo pa akong binaon sa utang at sama ng loob at hindi pa ako pinapatulog [Instead of being of help, the credit card further submerged me in debt and gave me sleepless nights].” Adaro said.

“The problem [harassment] is prevalent. However, it cannot be quantified since several victims would just keep it within themselves. Probably, because they are either embarrassed [for being indebted] or it is difficult to place a complaint since a lot of these harassment incidents mainly take place via phone. Thus, it is quite hard to identify the caller,” Larry Ignacio, a commercial lawyer and a faculty member at the San Sebastian-Recoletos Institute of Law, explained.

Ignacio said that in most cases, the complaint is not placed against the caller but to the credit card provider, whose main concern is to make the debtor pay or in some strong cases could just reprimand or terminate an agent.

Further, the lawyer explained that since contracts between collecting agencies and credit card issuers are mainly governed by “No cure, no pay” terms, it is common among collecting agencies to resort to harassment to compel delinquent debtors to pay their respective obligations.

“When you sum up all those defaulted payments, they make up quite a big chunk of money. That is why they would resort to harassment to make credit cardholders settle their obligations. Otherwise, collecting agencies would not get paid,” Ignacio said.

The work of collecting agencies in the country is considered by most lawyers as an industry in itself.

However, as grueling and labor intensive as collection is, people who work in that line solely rely on the volume of collections to make money.

Collecting agencies are usually a tie up between law firms and private entities. Law firms are indispensable to add more teeth to efforts of agents to persuade debtors to pay.

Chona Racho, a retired government employee, said that after one year of paying her credit card debt in full, the collecting agency dealing with her still did not stop calling her at the office. Informing her officemates about her outstanding debt. Moreover, demand letters piled up in her mailbox, telling her that a civil case was to be filed against her.

“I have already paid in full but my problem was I lost my proof of payment. But right now after more than 10 years since I paid, they [collecting agencies] have started bugging me again,” she said.

“It was quite humiliating. I have taken care of my reputation. But they [credit collecting agencies] would put me to shame and threaten me for something I have already settled for quite a long time,” she said.

“The country needs stronger laws to protect our consumers, taking into consideration of course, that delinquent debtors should not be coddled,” lawyer Teodoro Pastrana of Pastrana-Fallar Law Firm that specializes in Commercial Law said.

“While it is clear that there is a credit cardholder who defaulted, it is difficult for the debtor to claim that he is indeed being harassed. Thus, the claim of harassment must be substantiated with proof. But the problem is, how do you prove that you yourself have been harassed, since most of these incidents happen by phone?” Pastrana said.

He stressed that when a debtor records a conversation without the agent’s consent, this effort is inutile because it is prohibited by the Anti-wire Tapping Law.

“Certainly, it is unfair when the debtor is bombarded with harassment. But how can you qualify something, which is not prohibited by a law? The closest that a debtor could complain about is unjust vexation under the Revised Penal Code. But would he exhaust the means and does he have the money to prosecute an agent for harassing him?” Pastrana stressed.

This, he said is a predicament of credit cardholders that must be looked into. “There are several reasons why someone cannot pay his or her debts. Those people who have valid reasons and justifiable cause for not being able to pay on time should not be emotionally and mentally attacked.”

On the other hand, Bangko Sentral ng Pilipinas (BSP) Section 7 of Circular 454, which listed a few acts that may be considered as harassment is not criminal in nature because only Congress can enact a penal law.

The lawyer said that Section 7 of BSP Circular 454 under the Central Bank’s regulatory power is only mandatory to banks alone, and does not constitute a criminal offense. Thus, collection agencies are in effect spared from observing these guidelines.

Further, Pastrana said that though contracts between collecting agencies and credit card issuers are generally governed by “No cure, no pay” terms, it should not embolden collecting agencies to harass the credit cardholders.

“There should be no correlation between quota or ‘no cure no pay’ scheme and harassment,” he said.

He said that though it is unlikely for lawyers themselves to harass defaulted debtors since they are very much aware of the ethical consequences, lack of in-house or standard guidelines may give the agents and agencies more elbow room as to how far they could go to collect money from debtors.

“Although inevitably, quota, [which is being imposed by banks on their collecting agents] and ‘no cure, no pay’ arrangement [with collecting agencies] increase the pressure of collecting more from debtors, it should not embolden them to resort to harassment,” Pastrana stressed.

He said that though creditors may be practicing their legal rights, lawmakers should also enact a law that would protect credit cardholders from the manner of how creditors exercise their rights against their respective debtors.

”There is still a lot to be done in terms of protecting consumers. It is a reality that consumer groups lobbying for consumer-related laws have yet to push Congress to do more for credit cardholders,” he said. –KATRINA MENNEN A. VALDEZ REPORTER, Manila Times

(The Manila Times for more than a month tried to get the side of the Credit Card Association of the Philippines. They promised to respond but have refused to answer our queries or given us a reaction to the points in this special report.)