Think again before you say 'charge it'

By Emmy Fitri

JAKARTA (JP): As retail outlets tempt with a growing array of charge and debit cards, the Indonesian Consumer Foundation is warning consumers to be prudent.

Foundation vice chairman Agus Pambagio said recently that results of an ongoing survey into credit cards would be made public in October.

"We are also monitoring charge cards and debit cards (like KualiVa membership cards) as they are new products," he said.

The foundation, also known as YLKI, had received no consumer complaints about the new products, which are offered by the retail outlets in conjunction with banks.

But he warned consumers to "be rational in your spending needs".

The foundation has received 26 complaints this year about 10 card issuers, only half of which have been settled. Allegations of unscrupulous practices by collection agencies -- including people claiming to represent banks throwing stones at a debtor's window -- are tackled by police.

Other complaints included the charging of annual membership fees by the issuers even though a person had requested discontinuation of card privileges; extension of credit card membership without cardholder's approval; and debiting of a billing fee before distribution of the card.

There had been no follow-up to an earlier attempt at involving some banks in a working group on credit cards with YLKI, he added.

Complaints, he said, had been "frequent" since credit cards entered Jakarta in the 1980s. The foundation's calls for all types of plastic money to be regulated had received an inadequate response, he added.

Many local consumers, Agus said, lacked understanding of credit cards, which was further complicated by the many franchising practices and partnerships between foreign and local banks.

While Agus agreed plastic money was aimed at making life easier and safer, he questioned why banks seemed to have waived many screening procedures.

"It becomes troublesome when marketing is out of control, and it's dangerous, simply because the card issuers do not have fixed and clear criterion for their target consumers," he said.

There were ways to subvert the basic salary requirement "as long as we (ask for help) from the finance people in our offices".

He said banks did not verify the data on applications by rechecking with applicants' offices.

"These things happen as we don't have a legal institution, a kind of 'credit watch' like in the United States and other countries," Agus said.

Danger

The danger is that cardholders often do not possess the fundamentals of balancing their expenses, eventually winding up in trouble.

"They use the credit card and do not really understand how it works, and are soon trapped in debt," he said.

Agus described marketing practices and commercials as "dangerous" and "horrifying" in light of the lack of a regulation or thorough screening. "Banks should not rush (their marketing)..our consumers are not ready yet."

He said many cardholders do not understand the basic formula for calculating their bills or interest on the cards. Studying the fine print is important.

"Our people are vulnerable to (promises of advertisements)," he said.

With commercials boasting new products offering complete services and loan interest rates, people are lining up to apply.

Agus said most consumers here did not understand there were two mechanisms used in affixing interest, which can reach 5 percent.

"One is based on each transaction and the other is according to the total accumulated transactions counted at the closing date." He added most banks here use the former method.

The ideal cardholder should earn at least Rp 2 million.

Despite the attractions of debit cards, Agus reminded shoppers that the charges that would have been made in cash were taken immediately from the debit account.

The foundation's concern about the marketing of cards included department stores and trading companies, which Agus said should be under the supervision of the Ministry of Finance.

Following complaints from credit card users, the foundation drafted guidelines on their issuance with Bank Indonesia, the central bank, in the early 1990s.

"There was no follow up and suddenly the Banking Law was issued in 1992," Agus said, adding there was no clause on consumer protection in dealings with banks.

"We have always urged the government to prepare an infrastructure for the emergence of credit cards, but so far no action has been taken."

The foundation can only assist consumers by contacting the card issuers.

The gains for banks are hard to detect, he said, but include the monthly administration cost and taxes charged to consumers' accounts.

"Consumers mostly ignore these facts," Agus said.

Before you say "charge it", consider these tips for making prudent noncash purchases:

* Set your priority scale and buy necessities first. Needs and wants are two entirely different things.

* Limit plastic money transactions to 30 percent of your income.

* Always take into account the interest incurred on your charges.

* Paying credit cards by account transfer is preferable up to three to four days before the deadline. After that use cash to avoid unnecessary charges.

* Only take cash with credit cards when really needed, to avoid involved costs.

* Having one card is enough to make life convenient if used properly.

* Scrutinize offers for charge cards. You don't have to go to a supermarket just to buy a pin for the sake of collecting points.