Dispute resolution for banking customers

Dispute resolution for banking customers

Indah Suksmaningsih, Jakarta

Greatly tempted by an aggressive marketing campaign by a major
state bank that was promoting the great benefits of credit cards,
about 100 government officials in Wonosari, Yogyakarta, last year
applied for the cards.

A couple of months later the promised credit cards arrived
together with bills for the annual fee. How painfully surprised
the officials were after finding out that they had to pay the
bank, as the credit card issuer, a Rp 120,000 (US$13.30) annual
fee even before they used what the bank had previously called "a
shopping without cash" instrument.

Angered by the bills, most of the new cardholders refused to
pay. But the next month other bills followed, this time with an
added extra -- late payment charges. But they stubbornly refused
to pay, thereby causing a dispute with the bank.

It appears that the civil servants, most of whom earn less
than Rp 1.5 million a month, were not well informed about their
obligations and rights as cardholders. There have been numerous
instances where consumers have been misled to apply for a credit
card without considering their personal financial situation.

The problem is that, unlike in Australia or Malaysia,
Indonesia has no mediation institute or ombudsman where bank
customers can go to file complaints and amicably resolve disputes
over banking services.

In Australia, such an ombudsman was established 14 years ago.
Malaysia has the Banking Mediation Bureau, which was established
eight years ago. But as far as such a mediation agency and the
protection of bank customers' interests are concerned, Indonesia
has been quite slow to respond.

Bank Indonesia is still in the early stages of preparations
for the establishment of a banking mediation agency or bureau,
which is urgently required in view of the steep rise in the
number of disputes between customers and their banks.

Each year since 1996, the Indonesian Consumers Organization
(YLKI) has received no less than 100 complaints from bank
customers (credit card or ATM cardholders) related to double
billing, miscalculation of interest and unethical debt collection
practices.

The number and variety of bank transactions have increased
dramatically in recent years, thereby heightening potential
disputes and consumer complaints. The latest Bank Indonesia data
shows that the number of credit cardholders increased from 1.36
million in 1996 to 4.5 million in 2003, with card transactions up
from Rp 5.5 trillion to Rp 9.8 trillion. Within this period the
number of credit card issuers increased from 11 to 17 banks.

The closest place for consumers to go to redress their
complaints is the customer service departments of their
respective banks, but these departments tend to act in a
defensive manner and most often act in favor of the banks.
Certainly, these bank officers may get fired if most complainants
won their cases.

Where should then these unfortunate consumers go? To the
courts? This conventional dispute resolution method does not seem
to be suitable for cases where low values of money are involved.
It involves complicated administrative procedures, is time
consuming and expensive. To the police? Consumers may have to
spend more than the amount disputed to get the police to handle
their complaints.

Most cases of banking disputes reveal that there is an
imbalance in the bargaining power between the parties concerned.
Banks tend to hold a much stronger position than customers in any
given banking transaction. This leads to exploitation of power,
the bank exploiting the powerless -- the consumers.

The fact that consumers are increasingly discouraged from
seeking redress has driven the YLKI to propose to Bank Indonesia
that it look into the establishment of a banking mediation bureau
in Indonesia.

A visit by YLKI to the Banking Mediation Bureau in Malaysia
and a similar institute in Australia two years ago invited
sympathy and support in helping Indonesia to establish an
efficient, fair and affordable dispute resolution agency.

Peter Kell from the Australian Consumers Association stated
that "... the banking Ombudsman has become a well-respected part
of the financial services scene. It has ensured that consumers in
the banking sector have access to mediation and dispute
resolution that is affordable and accessible ...".

Some of the complaints the YLKI has received from consumers
have been handled well by the banks involved. However, some banks
chose to ignore the correspondence sent by the YLKI on behalf of
aggrieved customers since the YLKI does not have the authority to
force the banks to respond in these situations.

The YLKI does, though, possess one effective tool for making
banks pay attention to consumer interests -- YLKI's credible
reputation and ability to inform the public about which banks
have or do not have good track records in customer service and
the resolution of consumer complaints.

Learning from the YLKI's experience, data retrieved through
the effective handling of consumer complaints can be used by the
banking industry to improve customer service and the industry's
reputation, thereby retaining current customers and attracting
new ones.

A particular ATM case serves as a good example. A consumer
complaint about a double withdrawal in an ATM transaction showed
that the ATM machine was not always reliable. The private bank
admitted during the mediation process facilitated by the YLKI
that an error with the ATM had taken place. We thus assumed that
this had occurred to more than one consumer. It is therefore
obvious that for systematic problems one single complaint filed
makes a difference by drawing attention to the existence of such
problems.

One of the benefits consumers could enjoy from a national
mediation bureau is the application of standardized dispute
resolution procedures for any given banking complaint. This would
be a step forward toward equal treatment of consumers.

Going back to the credit card issue, the number of cards is
not the issue, but rather the main issue is how the cards are
used.

Data YLKI collected has revealed that consumers have not been
acting responsibly or taking care in their credit card
transactions. There is a significant trend among consumers not
to settler their credit card bills on or before the due date.
The consumer is then faced with high interest rates for late
payment. On average, consumers pay Rp 25,000 per month in late
payment charges.

Consumers must pay another fine when their credit card
spending exceeds their credit ceiling. To us, this is a trap to
generate more money from consumers. There must be a way to warn
consumers that their credit card spending has gone beyond the
allowed amount or to just stop access when the spending reaches
the maximum amount!

Credit card issuers behave like any other moneylender. They
allow you the option to pay back in installments. This is where
card issuers make money and how you are snared. The cardholder
ends up paying exorbitant interest of between 1.5 percent and 2
percent per month on the outstanding balance. Annualized interest
totals 18 percent to 24 percent. Credit control ultimately lies
in the hands of cardholders, not the government or the card
issuers.

The writer is chairperson of the YLKI.