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.