Credit card overcharges: Even ex-bankers upset

Credit cardholders, rejoice. Another senator is seeking review, for legislation, of existing laws, policies and jurisprudence regarding rates. Hopefully, relief is coming for 5.5 million overcharged cardholders.

Sen. Manuel Villar, a banker, cites in a resolution the State’s duty to regulate banking practices for the benefit of both cardholders and banks. This is in view of several Supreme Court rulings limiting interests and penalties, but belittled by card companies and monetary authorities.

The latest such ruling, in Sept. 2009, scores as usurious the interest of 1.5 percent plus penalty of another 1.5 percent a month. The total 36 percent a year is called “excessive, iniquitous, unconscionable and exorbitant.” (See http://sc.judiciary.gov.ph/jurisprudence/2009/september2009/175490.htm) Citing past verdicts, the SC sets a ceiling of one percent each a month for interest and penalty.

SC decisions form part of the laws of the land. But the Credit Card Association of the Philippines and the Bangko Sentral ng Pilipinas claim that the rulings are case-to-case. That is, these allegedly pertain only to the contending banks and clients in the cases. So cardholders who complain of overcharges are advised to go through expensive litigation on their own.

Villar is the fourth legislator to take up the cudgels for cardholders. Earlier Rep. Winston Castelo (2nd district, Quezon City), and Senators Francis Escudero and Ramon Revilla Jr. also sought legislative regulation. Revilla wants enactment into law of the SC’s one-percent rate limit. Villar’s Resolution 221 quotes the Constitution, Article XII, Section 6: “The use of property bears a social function, and all economic agents shall contribute to the common good. Individuals and private groups, including corporations, cooperatives and similar collective organizations, shall have the right to own, establish and operate economic enterprises, subject to the duty of the State to promote distributive justice and to intervene when the common good so demands.”

* * *

Meanwhile, ex-commercial banker Ramon Orosa chimes in:

“The credit card association’s justification for high interests ought not to go without response. It is illogical and ridiculous for card companies to charge good customers more in order to cover losses from deadbeats. All marketing dictums say that your best customers should be accorded your best rates.

“Also, cards are extensions of credit and must therefore carefully be assessed. Unfortunately the card association, though not responsible for decisions to extend credit to anyone, is being used by the banks that made the mistake of extending credit to deadbeats in the first place. The problem of bad credit is directly traceable to the mechanized method of pushing credit cards into the hands of virtually anyone. The business has become so formulaic, that it is a numbers game of who has the most cards issued and thus deemed most accepted. This is the way US banks got themselves into trouble; not even size can guarantee prudent banking practices.

“If banks make bad credit judgments and their statisticians err in assessing probabilities of default, or the paperwork is inadequate or fudged, why should the good payer pay for it? Moreover, all those cards charge merchant fees ranging from 3.5 to over 5 percent. I know that retail credit such as credit cards carry a higher cost of operation. Still, equity or establishment of appropriate reserves should answer for bad judgments made by bank management, not the good customers.

“There are many things that banks can do to encourage prompt payment. Interest rebates semi-annually for maintaining good credit could be one of them.”

* * *

Rural banker Thomas Rueda adds:

“Similar to cigarettes, a label must appear on all cards: ‘Warning: improper use of credit card may lead to bankruptcy’. This may sound crazy but a lot of lives have been ruined by it.

“A credit card should be viewed as a means to convenience. It requires, therefore, discipline to pay off the entire amount. In simple terms, you do not use your card unless you have money in the bank.

“Trouble starts when owning a credit card is perceived as an easy access to ‘other people’s money’. Some avail of the minimum payment facility, sometimes only a percent of the total due. Interest is then added to the 99-percent balance. This becomes routine and the impact is the compounding of the monthly interest.

“Card companies can afford the high default among creditors since this is subsidized by the interest on cardholders. Some companies go to the extent of hiring unscrupulous collection agencies that employ various methods of harassment to force delinquent card users to pay. It’s about time the various government agencies protect the public interest.”

* * *

Meanwhile, the US justice department has sued three major card companies for antitrust violations. In the same case American Express, Visa and MasterCard were indicted for preventing merchants from encouraging customers to use cheaper cards. The latter two settled with the government, now allowing merchants to offer discounts to consumers who use less expensive credit or debit cards. (See http://news.yahoo.com/s/nm/20101004/bs_nm/us_creditcards_antitrust)

* * *

 “The deeper your desolation, the higher your consolation.” Shafts of Light, Fr. Guido Arguelles, SJ

* * *

E-mail: [email protected]