Credit card: A wealth hazard in this weak economic situation?
Credit card: A wealth hazard in this weak economic situation?
Indah Suksmaningsih, Jakarta
A credit card customer in Jakarta recently lodged a complaint
with the Indonesian Consumers Foundation (YLKI) that a private
bank had been automatically charging his account a monthly fee of
Rp 15,000 (some US$1.6), without his knowledge.
Later, he learned the issuer had offered a consultation
service to card holders, which would give them access to a second
opinion abroad for health services.
In the disclosure statement, the issuer included a clause
saying that should the bank fail to receive confirmation or
cancellation from the customer a month after the receipt of the
credit card, the bank would consider that the customer had
approved the offer and, therefore, all charges to come would be
deducted from his credit card.
The above example is but one of many common practices employed
by credit card issuers here. Such practices, which put consumers
in a disadvantageous situation, are prohibited in other
countries, like Australia.
Deputy chairman of the Australian Prudential Regulation
Authority Ross Jones says customers should ignore unsolicited
deliveries sent with directions for the customer to return the
deliveries within a certain period of time, or pay up.
"Customers should ignore such requirements in accordance with
the Trade Practice Act. Such a practice also prevails in
financial services. The supplier must ensure that they obtain the
customers' signatures (as evidence of approval)," Jones said
recently.
Such an unethical practice is likely to be done intentionally
after learning of weak consumer protection measures, low
political will in law enforcement and uncritical consumers that
do not care enough about the terms and conditions commonly found
in the standard forms of agreement between card issuers and their
customers.
Consumers often, without a clear understanding of the
implications of the provisions in the agreement, habitually sign
for the acceptance of the card, and by doing so have agreed to be
bound by these terms and conditions.
Another consumer wrote a complaint letter to the YLKI,
surprised to see the "scary" figures on her balance. She
confidently said she had completed her obligations and paid the
minimum payment on time.
This seems to be the pattern of people that come to the YLKI
to file complains.
Many may have overlooked a warning stated in a leading
American magazine, Consumer Report (1996), which cites "If you
pay the minimum balance each month many cards wont be paid off
for 20 years or more. People who carry over a balance from month
to month -- and pay interest on it -- are the least likely to
know what interest rates they are being charged."
More interesting is the statement of the Indonesia Retailers
Association: "the fuel price increase does not change people's
consumption pattern, be it products in department stores or
groceries. What seems to have changed is how they pay. Unlike
previously, when credit cards were used to buy products in
department stores, nowadays credit cards are used even for
groceries. The easy availability of credit has seduced millions
of people into spending what they don't have."
The credit card business has become a lucrative business that
attracts local and foreign banks alike. One bank claimed 70
percent of credit card issuer's income is raised from the
interest. The rest comes from the cash-advance charge and other
fees. The card companies also collect from merchants, who pay an
issuer a fee of two to four percent for every purchase.
The volume of credit card transactions in 2004 reached Rp 37.6
trillion, which is a 100 percent increase from the figure in 2001
(Rp 19.2 trillion).
It could be assumed that the pseudo purchasing power offered
by credit cards during the financial crisis encouraged a wealth
hazard that is harmful for everyone: the government, cards
issuers and consumers.
It is vital for the government and providers to be wary of the
emergence of pseudo purchasing power, or people spending what
they do not have.
This assumption is confirmed by the central bank's report that
the total outstanding balance hovered at Rp 11.7 trillion in
2004. This figure of outstanding balance indicates that many --
if not most -- card holders used their credit cards without care
or caution, and more importantly, did not settle their credit
before the due date. Rather they opted to pay only the minimum
monthly five or three percent, incurring the heavy penalty of
interest charged on their outstanding balance.
Since 2003, the national total for revolving credit -- the
amount of debt carried over from one month to the next -- has
climbed by 20 percent, from Rp 9.8 trillion to Rp 11.7 trillion
in 2004. Meanwhile, non-performing loans (NPL) increased from 8
percent in 2003 to 8.7 percent in 2004, amounting to Rp 1.02
trillion.
The issue of pseudo purchasing power is also evident in recent
complaints filed by consumers with the YLKI and the central bank
under the three-month complaint handling program.
Within the first month of the program as many as 220
complaints were filed -- almost 60 percent of which concerned the
problem of inability to pay off growing debts. Worse still, some
issuers reportedly hire debt collectors, who used threats or
worse to intimidate not only the card holders, but also their
families and colleagues.
Second from the top is doubled-up bills. Consumers are
complaining over providers' poor administration and carelessness.
Paid bills are shown on the next month's bill.
Ranked third is "interest on interest".
The fourth is bills for transactions that consumers have not
made. Last but not least is the rejection of credit cards.
Consumers find it humiliating to be "rejected" in public, while
providers do not consider the consumers' feelings.
Unfortunately, after over 10 years, credit card use here is
still largely unregulated. In December last year, the central
bank issued a regulation in order to better protect consumers and
prevent them from being fooled by credit card issuers.
Under the regulation, the central bank requires issuers to
apply more stringent selection procedures, including a minimum
age for card holders and a minimum annual income.
These sorts of preventive measures seem to be what is needed,
particularly as consumers are put under financial pressure due to
the fuel price increase.
Remember, if credit card companies handle you roughly, you are
pretty much on your own because the protection mechanisms are not
yet in place.
The writer is the chairperson of the Indonesian Consumers
Foundation (YLKI)