Why we should support the bill limiting credit card charges

After the enumeration we had on The Eight Habits of Investment Literate People, I feel obliged to elaborate more on some of the said habits or at least, discuss something closely related. For this post, I would dwell on something related to the 3rd habit: the issue of credit card charges and why we should support the pending bill relating thereto.

By way of background, the charged interest rate in credit cards in the Philippines is about 2.5% to 3.5% per month. This is imputed on the balance not paid on due date, in effect, the unpaid outstanding amount is like a loan from the bank or credit card issuer.

Note that in other parts of the world like in the Middle East Kingdom where I used to work, the rate is only 1.75% per month or 21% per annum, which is deemed reasonable. But here in these motherland of ours, they are charging 2.5% to 3.5% per month or 30% to 42% per annum. What a big difference!

The principal amount used as basis for computation of charges on the outstanding balance is another issue. I was told that some of the banks do not base the computation on average daily balance (ADB) but on the maximum amount outstanding at any time during the month.

There is a mountain of difference when one computes interest charges based on ADB or based on anything else. And the results can be like robbery in broad daylight, with interest charges skyrocketing before you know it. I am not referring to penalties but to regular charges on remaining balance of your card debt.

If this indeed is true, then the poor consumers are being milked dry two times. The legal profession has a term for such situation and they call it “double jeopardy.”

No wonder why you see in the favorite malls, the innocent consumers and passers-by are being continually chased by card salespersons brandishing glossy credit card application forms bright and shiny like freshly-caught milkfish. Never in my life have I seen such traditional contraptions of the well-to-do as credit cards, being so openly peddled, like fish in a Baclaran wet market. Strange indeed, how far down can the behavior of men degenerate in pursuit of the profit motive.

Going back to the high rates, I don’t think there is anything that can justify such rates particularly at this worldwide low-interest era when savings deposit can only get you a measly interest or 3% or 4% per annum. Call it usurious or call it any other name (unfortunately, the term usurious has been stricken out of the vocabulary since 1983 when  Anti-Usury Law was repealed), it is here to stay.

Unless, of course, hapless people like us complain and do so with vigor. Or our dear legislators take the cudgels for the poor consumers like us. At least, the taxpayers will have some consolation for the liberal servings of “pork” the honorable lawmakers enjoy.

In October 2010, Congressman Raymond Mendoza (TUCP partylist) filed a bill limiting the interest charges on credit cards to only 12% per annum. Not to be outdone, Cong. Arthur Yap (Bohol) filed his own version of the same thing, a month or so later. Well, I hope these honorable gentlemen’s versions also touch the issue of ADB computation and they are prepared for slugfest on this issue.

In 2009, three senators – Sen. Francis Escudero, Sen. Mirriam Defensor -Santiago and Sen. Ramon Bong Revilla, Jr. – filed separate bills on the same issue. Not one of the three bills saw the light of day to become a law in the last Congress.

I am actually surprised that it took this long for our lawmakers to wake up and file a bill like this. This has been going on for years and no one took the initiative to stop this unconscionable practice.

Let’s not kid ourselves to think that social responsibility exists in the minds of CEOs of many banks. Probably in other types of companies they do so, but for most banks, this is the last of their concerns, I’m sorry to say. Just take a look at what happened in the US since 2008. Ask what precipitated the subprime crisis in the first place and you see the dirty footprints of the banks and financial institutions big and small every step of the way from A to Z.

It is downright foolish for anybody, let alone banks with vaunted credit departments, to lend to consumers who they know, are not credit worthy. And yet this is exactly what they did and which precipitated the subprime crises in the US in the first place. Speaking of where greed and myopia for immediate gratification can lead to.

The fact that three senators filed the bill in 2009 and yet nothing happened, can be a preview that this thing will be bloody. The banks will fight tooth and nail against this bill. This is one hell of a fight, probably as vicious or even more vicious than the struggle for the Generic Drugs Act. In this “land of the benighted” (as what former Malaya columnist Lito Banayo often say to describe our country), nothing good seems to come without struggle.

I can cite several reasons why this bill should be supported with great vigor.

One, this unconscionable practice has to stop for basic reasons of decency. The fact that they are doing this in a regime of low interest makes the practice even more callous and detestable.

Two, everybody who does not pay off his total balance on due date is a victim and banks are making scandalously high profits at the expense of the poor consumers, many of them OFW dependents back home.

Three, they are not going to stop this at their own discretion, although they know that it is wrong. Or never mind being wrong (lest the religious might accuse me of encroaching into their moral turf), it causes unnecessary expense or burden to the consumers.

Four, the possibility of the banks and credit card issuers organizing a lobby against this bill is almost a certainty. Just remember the well-orchestrated lobby of multinational drug companies against the Generic Drugs bill which prompted then Congressman Teddy Boy Locsin to raise hell during the deliberations for the approval of the bill.

Hence, I therefore call on the OFW accredited community partners or ACPs and cause-oriented groups to support such a bill that has a direct bearing on the gut of the Filipino people. As the Tagalog saying goes, the issue is “naka-kabit sa bituka” .

Perhaps ACPs can write statements of support to the two congressmen mentioned above. Perhaps they can write to Senators Escudero, Defensor-Santiago and Revilla to resurrect their moribund bills. Perhaps they can organize forums and invite these legislators. Any action is better than no action.

I am just suggesting, folks. What do you think? –Romie Cahucom, http://theofw-microinvestor.com/