IDRP: Giving credit card debtors a new lease on financial life

by Jimbo Owen B. Gulle, Oct 28, 2016

Have you ever maxed out a credit card, or multiple cards? And if you have, have you ever hoped that you could get back in the good graces of credit card companies and enjoy using plastic money again?

In this country, that’s possible, thanks to a program recently launched by the Credit Card Association of the Philippines (CCAP) and the Bangko Sentral ng Pilipinas (BSP) with the participation of BDO Unibank Inc.

Called the Inter-Bank Debt Relief Program (IDRP), this plan allows highly indebted and financially distressed but well-meaning credit card customers to get back on track toward responsible credit use, by allowing them to restructure their existing debts.

Members of the Credit Card Association of the Philippines band together to support the Inter-Bank Debt Relief Program (IDRP).

The program aims to offer “more affordable terms, lower interest rates, and reduces the equal monthly amortization of the customer to enable him or her to sustain paying the account and prevent further delinquency,” CCAP Executive Director Alex Ilagan says.

Under the program, which started last June, an indebted cardholder’s financial capacity, including his or her income and expenses summary, will be reviewed prior to enrolling the debtor’s account to the IDRP.

As long as 10 years

A customer’s repayment period can extend to as long as 10 years for severe cases of indebtedness. Interest rates will be pegged at 1.5 percent per month or even lower, depending on the profile of the customer, his debt to income ratio, and completion of documents required for the program.

Participating banks may also have the option to disapprove application for customers who have “misused and abused the credit facility granted by the banks,” Ilagan added.

If a customer does take up the IDRP, all his or her existing credit cards will have to be blocked or cancelled upon enrollment of the delinquent accounts, and any rebates or rewards the customer earned will also be forfeited.

Customers cannot apply for a new credit facility with the participating banks while their accounts under the IDRP are not yet fully settled. Those who enroll in the program also need to show “a reasonable ability to pay the necessary amortization prior to being accepted.”

To make it more convenient and streamlined for customers, Ilagan said they could approach any credit card firm they are indebted to and transact directly with a “one-stop-shop” facility, courtesy of a lead bank, to negotiate or apply for debt restructuring of all his or her outstanding obligations existing in other banks.

In case the customer has multiple credit card debts, the bank or company with which he or she has the biggest debt will be the lead bank and act as the main coordinator, the CCAP chief added. “The banks themselves will take charge of notifying all other program members of a customer’s inclusion in the program,” Ilagan says.

Minimum requirements

All credit card accounts applying for the IDRP must be at least six months old, with an outstanding balance of at least P10,000 per card and total card obligations of at least P100,000 for all cards.

The CCAP says acceptance into the IDRP is subject to certain restrictions and qualifications, as well as submission of pertinent documents. Qualified customers, as they comply with their approved terms, may opt to issue post-dated checks at lower interest rate, or pay cash to each bank separately on the due date.

To make it easy for the customer in the future, CCAP is developing a centralized or single payment channel so customers can consolidate all payments in one check or one location, in case of cash payments. This facility will be made available before the end of 2016, Ilagan says.

Customers are not allowed to apply for debt relief for a single credit card only, the CCAP says. They are required to disclose and include all credit cards owned with the participating banks. Once a customer applies for the program, all of his or her existing credit card accounts, whether delinquent or not, will be included.

That means the customer won’t be able to use any of his or her “good” credit cards until after the repayment schedule for the other cards are completed.

The cardholder’s name will also be reported to the Credit Bureau, thus affecting their ability to apply for new credit cards or loans. The CCAP says these measures are intended to prevent customers from making cash advances on one card to pay off obligations in another.

“It will also eliminate possible abuse from customers who may be looking for a way to pay lower interest on their outstanding balance that are not yet past due,” Ilagan says.

Financial rehab

What’s the benefit of participating in this program? The spirit behind the IDRP “is to rehabilitate and provide a second chance to financially distressed customers,” Ilagan says.

“After a customer completes the payments of the program and proves financial soundness and capability, they will be treated as a new applicant if and when they apply for a new credit facility,” he adds.

CCAP members are all in on the program. Its members include Asia United Bank, Bank of Commerce, Bank of the Philippine Islands, Citibank, China Banking Corp., Eastwest Banking Corp., Equicom Savings Bank, HSBC, Maybank, Metrobank Card Corp., Philippine National Bank, RCBC Bankard, SB Cards Corp., Standard Chartered Bank, and Union Bank of the Philippines.

Although not a CCAP member, BDO Unibank Inc. will have exactly the same responsibilities as the other banks in the IDRP, Ilagan assures. What’s more, the debt relief program would also cover unsecured personal loans by October, he adds.

“We definitely expect delinquent cardholders to take advantage of this opportunity to secure more liberal terms for the restructuring of their credit card debts, compared to negotiating individually with the issuing banks,” he says.

The CCAP says that industry data indicates about P2.32 billion being placed in individual restructuring programs of banks as of 2015, representing 1.39 percent of the industry’s total receivables of P167.41 billion. Interest rates from these delinquent accounts range from 0 percent to 3 percent, with an average term of 48 months.