15 May2011

The vast majority of the readers of Marketmanila.com have at least one credit card in their wallets. The objectives of the following series of posts on credit cards in the Philippines are simple. To help readers, acquaintances and the public in general understand the local credit card industry a little better. To highlight the unique risks associated with Philippine-issued credit cards. To remind the public of particular safeguards they should consider to reduce the risk of holding their credit cards. To explain some of the salient features of credit cards that people may wish to learn more about. To encourage our legislators to review the laws governing local credit cards to ensure a truly reasonable playing field that protects consumer’s rights, as well as those of banks and credit card companies. To encourage the public to educate themselves and seek fair laws that govern the credit card industry in the country. And to narrate several recent, specific credit card and banking service shortfalls that I have experienced and which are a useful tool to illustrate many of the objectives stated above.

What is a Credit Limit?

I bet 80+% of you were certain of the answer to this question, and yet, defying all reasonable logic, many foreign and local banks engaged in the credit card business in the Philippines seem have a different definition for a “credit limit” when it comes to their respective credit cards.

Typical Definition

A credit limit is the MAXIMUM amount of credit that a lender or financial institution (bank, credit card company, etc.) is willing to extend to a debtor. Or, for credit cards specifically, it is the MAXIMUM amount a debtor is allowed to borrow against a specific credit card.

How is a credit limit determined?

The amount of one’s credit limit is often driven by the size of one’s annual income, the assets you hold (homes, bank accounts, securities, etc.), your previous history with respect to paying obligations, etc. Often, a bank reviews a client’s details and creates a credit score which drives the credit limit offered to an individual. Banks like to keep increasing credit limits, OFTEN without a client’s approval or agreement, so be sure that your credit limits haven’t been creeping up over the years to a level you simply do not need or want.

Why is carrying a wallet filled with credit cards issued in the Philippines potentially more dangerous than carrying cash?

In the Philippines, if your credit card is lost or stolen, most banks try to hold you FULLY LIABLE for all charges made against the card until you call the credit card company to report that the card is lost. This is SIGNIFICANTLY different from standards elsewhere in the world. In the U.S., for example, the maximum liability for the cardholder in a similar situation would be as low as $50.

If you are shaking your head and want to know more, please read this post I wrote nearly 5 years ago. If I were you, I would open up my wallet right now and mentally add up the total credit limits of all Philippine issued credit cards that you maintain. If it would be difficult or even just slightly painful for you to have to pay up that entire amount in cash soon after your cards are lost/stolen and used to their maximum limits, then you might seriously consider lowering your credit limits as soon as possible. As a personal rule, I try to keep my local credit card limits at less than two months of my salary/income and this dramatically reduces my risk in case the cards are stolen or lost. I have other tips for reducing your risk of loss in the linked post above.

What Happens When a Bank Blatantly Disregards Credit Card Limits? Do you think that a large bank would give Mr. & Mrs. Marketman PHP42,000+cash/credit if the bank didn’t do anything WRONG? An Interesting Case Study…

I had two nearly identical situations where credit cards of my supplementary card holders (staff members) were allowed to breach their credit limits (which I had set strictly in a written letter to the bank) by as much as 100% of the credit limits! Read about the first instance, here. I wrote a follow-up “concluding” post, here. But just three months later, lightning struck twice and I was faced with the same situation again, here. What’s the bottom line? That particular bank allowed a serious breach in credit limits, up to double the original credit limit, and when I pointed out that it had happened on several occasions, they finally admitted they had indeed allowed major breaches and could not explain why, and they credited our accounts with PHP42,000+ for “goodwill”… Sorry, but I can be cynical. And when a bank gives you PHP42,000 while claiming they did nothing wrong, you have to wonder why they were parting with their money… Credit limits should represent A LIMIT, and the use of computers these days makes it potentially VERY EASY to establish and maintain that LIMIT.

——-

A quick check of various bank websites (banks operating in Philippine market) resulted in these definitions for credit limits…

1. “CREDIT LIMIT” – The maximum outstanding balance of charges which the CARDHOLDER and his/her supplementary CARDHOLDERS are allowed to maintain at any given time subject to security features and credit limit management features that the ISSUER may impose for the benefit of the CARDHOLDER” – HSBC Philippines (Fine print in Font Size 9 in original electronic document)

2. “Credit Limit. The Cardholder will be assigned a Combined Credit Limit, expressed in Philippine Pesos, which represents the maximum allowable outstanding balance on all of the Cards held by the Cardholder combined, at any time.” – Citibank Philippines (Fine print in Size 5 in original electronic document)

3. “CREDIT LIMIT – Upon acceptance of Cardholder’s application, BPI, at its sole discretion, shall grant a credit limit to the Cardholder expressed in local currency (Philippine Pesos) which consists of either one or both of two forms, namely: (a) the Regular Credit Limit and (b) the Special Installment Plan (S.I.P.) Limit, the aggregate of which represents the maximum outstanding balance that a Cardholder and his/her supplementary cardholders are allowed to share at any given time subject to the security requirements and credit card management requisites which may reasonably be imposed by BPI from time to time ( the “Credit Limit” ). In no event shall the Cardholder and his/her supplementary exceed the Credit Limit.” – BPI (Fine print in Size 11 in original electronic document)

Surprisingly, I was unable to locate the typical terms and conditons that outlined “credit limits” for credit cards for either Metrobank or BDO on-line…

Of the banks above, it seems ONLY BPI sticks to their credit limits. Their definition jives with the commonly accepted definition of a credit limit. Once a charge exceeds the stated credit limit, the charge is denied. Many other banks “bend” their definitions of credit limits, and now allow “overlimits” which is a way to increase fees collections, but more on that issue in the next post.

CREDIT LIMITS – A SUMMARY

1. A credit limit should (but doesn’t always in the Philippines) represent the maximum amount of outstandings you can have on a card.
2. Banks/Credit Card Companies often increase credit limits without seeking your permission or approval, under the guise that they are doing you a favor and that all customers presumably want the biggest credit limits that they can qualify for.
3. A local credit card with a very high credit limit also carries a very high risk for the holder, particularly if the card is stolen or lost and used to charge items fraudulently. The cardholder is HELD LIABLE for all charges made before they notify their credit card company of the loss.
4. It is safer to carry the fewest amount of local credit cards as practically possible, and to bring down the credit limits on those cards to the level which represents your actual needs. You may want to consider reducing your credit limits on locally issued cards to reduce risk. One way you might do that is to figure out how much you can afford to pay up in the event that your cards are stolen and charged to the maximum. Or you can look back over the last year and see what the maximum credit you have used in the past is, and bring your credit limits down to that level.
5. Despite the relatively clear definitions of “credit limits”, you need to READ the fine print in credit card applications/websites as they are, frankly, often difficult to fully understand, and unclear for most customers. It amazes me that government has NOT seen fit to set clear guidelines for critical terminology like “credit limits” as it applies to credit card customers.
6. If you want to maintain a modest credit limit, put that peso figure in writing, send it to your credit card company and be vigilant when you peruse your credit card statements for any unauthorized increases in credit limits. This will give you some added proof and protection when a card company allows huge breaches in credit card credit limits.

Interested in reading the rest of the credit card series? Click here:

Part I – An Industry Overview

 

COMMENTS:

  1. Fleeb says:

    Bad link: xxxx – (Thanks Fleeb, link fixed – Marketman)

    May 15, 2011 | 9:52 pm

     
  2. evAv says:

    Thanks MM for this long awaited Credit card series…

    May 15, 2011 | 10:14 pm

     
  3. Gerry says:

    My grandmother once got her card stolen in a Rustan’s store. Within an hour, she discovered the loss and we reported it immediately. The card was apparently being used inside the store when we reported the theft, but the thieves were still able to charge 100k on the card. I still don’t understand how the perpetrators were not apprehended since one of the transactions was denied since it happened after our report. Luckily we were not charged anything for the loss of the card.

    May 15, 2011 | 11:13 pm

     
  4. joyce says:

    hello mm! thanks for this great series. the links above connect to your wordpress log in though, fyi.

    May 16, 2011 | 1:19 am

     
  5. JE says:

    Hm. Citibank’s definition is vague on limits tied to additional cardholders. I wonder if they treat a supplementary cardholder as having its own separate limit from the main, as that could potentially be worse if you have a situation where the main and the supplementary are involved in fraud. The others define the limit as just a running total across all cards under one main account.

    And seriously, font in 5? They’re really pushing for these to be vague and inconvenient, huh.

    May 16, 2011 | 2:06 am

     
  6. Marketman says:

    JE, Citibank does give specific limits for supplementary cardholders. You can specify say PHP10,000 for supplementary A, and say PHP20,000 for supplementary B… joyce, link fixed, thanks.

    May 16, 2011 | 6:09 am

     
  7. Rebecca says:

    That is infuriating. I really had no idea that the CC companies in the Philippines operated this way.

    May 16, 2011 | 7:05 am

     
  8. tenbreedmountaindog says:

    Thanks for the series. Are sales staff required by law to check an signed ID? How about credit cards with pics?

    Everytime, I claim my eensie-weensie Pizza Hut freebie (from a P1,500 BPI card charge), they take away my card, driver’s license and make me sign up to two little sheets of paper. To think I was with my two senior citizen parents, making any speedy getaway a bit problematic.

    A friend lost P150k worth of unauthorized purchases from a lost card, shouldn’t have they made the same checks on the thief who used the card?

    May 16, 2011 | 7:25 am

     
  9. loney kitchen says:

    Thank you for all the information. Very informative and a great help.

    May 16, 2011 | 9:40 am

     
  10. jay p says:

    you got me worrying so i double-checked my credit limit. holy s**t! it was set at 300k plus an additional 100k for “installment” plan.

    i do not intend to buy a car with my credit card anytime soon!

    also if someone steals my credit card it would also take a very very very long time for me to pay this off.

    i just had my credit limit moved down to a saner level.

    thanks a lot market man. Due to the importance of your public service announcement, you are hereby absolved of any ill will for your impertinence of drifting off topic. :D

    May 16, 2011 | 11:30 am

     
  11. myra_ps says:

    MM, as a result of being caught in unmanageable credit card debt when I was younger and dumber, I no longer use credit cards. I only carry debit cards now. This and hard cash helps me keep spending in check because it hurts when you actually have to pull out the money from your wallet and hand it over. Something about signing a bill and delaying payments can really lull you into a false sense of wealth.

    If I do need a credit card for online transactions, I use my mom’s card. And she’s really strict about being paid back :D She’s better than a fraud agency/the NBI/credit card collectors combined.

    May 16, 2011 | 11:50 am

     
  12. Gej says:

    A card I got many years ago had an original credit limit of 25 K that ballooned to 300k as a result of this computer-generated way of increasing limits without my approval ( and I only use a small percentage of that limit) , which I just ignored over the years. After I read MM’s post on the risks of carrying cards with high credit t limits 1-2 years ago, I also called the card company to reduce my limit to a much much lower amount.
    Just the same, a credit card somehow encourages the user to spend more than what is ideal – same for me. One of these days, I just might switch back to what you, myra_ps, do, if only to get back in the habit of really being very disciplined with finances. Thanks.

    May 16, 2011 | 12:15 pm

     
  13. present tense says:

    The rules were intentionally meant to be vague is my opinion. I have found that once laws are enacted, the banks or credit card companies simply redefine their definition of terms in the contract between the bank and card holder such that the bank can and still will steal as much as legally allowable. That is the gripe I have against current banking laws. No teeth.

    May 16, 2011 | 2:38 pm

     
  14. ami says:

    I wish that establishments would be stricter with checking if the person charging is really the owner of the card by asking for an ID. Sadly, something as simple as comparing the signature at the back with the signature on the slip is not even being done.

    May 16, 2011 | 2:53 pm

     
  15. eric says:

    wanted to chime in about “overlimit” fee (which i find absurd) but i guess i would be getting ahead of the next post… oh and fyi, i just exceeded my max bpi limit by P2000 (less than 1% of my total limit) so i guess in some cases limits get exceeded. although they seem to be more strict if you peg limits on supplementary cards (gave our driver an extension to facilitate gassing up cars but pegged a limit and it was indeed declined when it exceeded).

    May 16, 2011 | 6:03 pm

     
  16. Juan Dl Cruz says:

    Hello MM,

    Im writing to you today because I am exasperated about how credit card companies
    deliberately make it easy for some people to fall into a debt trap. I am a company
    president and every month in our general meeting, I always mention the need for
    a responsible management of personal debt.

    In my blog I wrote about how one of my employees debt balloned to P64k because
    he thought he is availing a free cellphone when you sign in for an HSBC card. The
    P4k cellphone balloned into a P64k debt in 10 months and now he’s children has to
    stop studying for one year because the money earnmarked for their education and
    food has to be paid to HSBC. It is really a sad experienced.

    here is the link to that blog. Feel free to comment on what actions can be done.

    http://juandlcruz.blogspot.com/2011/05/credit-card-companies-and-banks-are.html

    I also mentioned that credit card companies and banks are teaching filipinos
    wrong values.

    May 16, 2011 | 7:07 pm

     
  17. present tense says:

    Some time ago, there was this absurd law on penalties applied to bank officials. Forgot it verbatim. But it says that a bank official can be penalized for up to 40 years (?) max or something to that effect. Simply put, I can therefore steal Php40B and serve just 40 years. Pretty good deal – specially if you have kids and grand kids

    May 16, 2011 | 7:10 pm

     
  18. Gigi says:

    I have always made it a point to ask for a downgrade to the lowest possible limit. I have even returned a platinum card and asked for the plain one, precisely for the same reason you stated — the hassle of contesting charges if the card gets stolen. But let’s face it — most people would rather show off gold / platinum cards.

    May 16, 2011 | 8:50 pm

     
  19. Marketman says:

    Gigi, you can always have a platinum card with a PHP40,000 limit instead of PHP300,000… :) From the look of the survey on the right, at least half of the readers could easily cut their credit limits in half… Juan, thanks for the link…

    May 16, 2011 | 10:21 pm

     
  20. Zerho says:

    Thanks Marketman, been waiting for the next post. I’m now going to reduce my credit limit to the level i’m spending and likely to spend. Also would appreciate it if you can have a post regarding how credit cards compute interest and late fees. I’ve checked my credit cards fine prints regarding interes/fees and I’m not sure if its there or i simply did not understand some parts. It’s just infruriating how the big banks are preying and capitalizing on their OWN customers.

    May 16, 2011 | 11:40 pm

     
  21. moni says:

    MM, thanks for your posts on credit card. The P300k credit limit that my credit card company gave me in 2002 got me worried even then that if I lost my credit card, that’s a lot of money to pay back. I have in fact drafted a letter asking to lower the credit limit but I have not sent it. I will resurrect that letter and send it tomorrow.

    May 16, 2011 | 11:43 pm

     
  22. josephine says:

    I agree MM, there are many anomalous situations with credit cards in the Philippines. The first is that unbelievable liability. My auntie had her card stolen in a department store (OK, she is over 80 and not as attentive as she was) and found she was liable for 100s of thousands charges although the card was reported stolen. This would not happen in most countries. On the other hand, I have a Philippine card with a reasonably high credit limit which I only use when I am there. When I tried to charge (an admittedly expensive) boxed Lego set for my grandson for his last birthday, the store went through all sorts of hoops with ringing the bank and double checking my ID even though the amount was well below my credit limit. Does this mean thieves/criminals have carte blanche, whereas legitimate card holders have to prove who they are?

    May 17, 2011 | 1:08 am

     
  23. netoy says:

    Unfortunately, even here in the US, a lot of retailers do not ask for one’s ID when using a credit card. What i have done instead of signing the back of my cards is put PLS CHECK MY I.D. and reading this at least prompts the teller/sales person to do this. If they did, then I make it a point to thank them for keeping me safe. I don’t know though if you can do this back home as it may be mis-interpreted as defacing the card so you may want to check. I also have a habit of monitoring my credit card activities online regularly. As most of you said, better safe than sorry…

    May 17, 2011 | 2:44 am

     
  24. Mart says:

    Actually, you don’t even need to have the card stolen. With credit card readers becoming cheaper and accessible (heck, you could buy a kit off the internet), a cashier that is in on the scam can swipe your card twice; once at the real register and one on a credit card reader.
    Or a slight more savvy/sophisticated crook would rig the store’s card reader so they can get a copy of the card info as it is being swiped for the transaction. Then they can make a duplicate card later on which they can use just like the original card. And you’d be none the wiser because you have your card in hand and think you’re safe.

    Slightly off-topic, Here in the US, a couple of years ago there were even a few ATM machines that were rigged with form fitting card reader that went on top of the card receptacle in the ATM machine. Then the perps would collect a day’s worth of ATM access at night.

    Another avenue is online transactions and compromised computers (i.e. virus/trojan infected).

    If you must use a card, make it a debit card and live within your means. If the card is used illegally, at least the money you’ll lose is only what you’ve deposited in the debit card and nothing more.

    May 17, 2011 | 4:58 am

     
  25. GabbyD says:

    i dont understand the problem.

    if the card company is willing to offer you more credit, why is that a problem per se?

    if the problem is loss protection, wouldnt the solution be legislated limited liability (as you said at the top), as opposed to credit limits?

    May 17, 2011 | 8:34 am

     
  26. Marketman says:

    Gabby, exactly right. If there were limited liability, then banks would be VERY CAREFUL about increasing credit limits, and reviewing who they issue cards to, and in that case the credit limits are more balanced. The credit limits per se are NOT the problem, it is that the balance of risk has been shifted to the consumer, where it is with the issuer in most developed countries. If the balance of risk were shifted more to the issuer and to the merchants, THEN merchants would be more careful when checking signatures and cards, or asking for identification or checking with credit card companies in very high value transactions AND banks would be restrained in limits. A form (legislated or self-regulated) limited liability is definitely a potential solution.

    Most Filipino cards have an annual fee, meant to cover some of the overhead or administrative or other costs associated with having the card. Therefore, it is not UNREASONABLE to expect that the credit card company would carry some of the risk. In this case, much of it lies with the hapless consumer, who in most cases, doesn’t even REALIZE the potential RISK they carry in their wallets…

    It is my personal guess and only my opinion, but if limited liability were introduced, it would be harder to obtain a credit card issued locally, and perhaps as many as 500,000-1,000,000 credit card holders (out of 4,000,000+) might not be able to renew their cards due to higher risk profiles for banks, and the rampant credit limit increases clients have been receiving would probably slow dramatically. You would also find salespeople more vigilant about checking credit card signatures or identification cards on instructions from their bosses/business owners who may stand to lose if the transaction is fraudulent.

    It is perhaps a positive sign that stores/chains such as Rustan’s now seem SERIOUS about checking identification against credit card purchases, and I LIKE that they do that for both my and their safety. I wish credit card companies would start to think more along those lines rather than pushing almost all risk onto the consumer…

    May 17, 2011 | 9:28 am

     
  27. Marketman says:

    Mart, you are right, identity theft is increasing. But at least for some of those cases, I have seen that some credit companies eventually DO NOT insist on holding clients liable if they still had their cards, the signatures on the slips are forgeries, etc. This is particularly true I think if the abuses occur in one place, say a particular store or gas station or charges on the internet… But you may still be seriously hassled as you try to sort that out and prove it was indeed identity theft…

    May 17, 2011 | 9:35 am

     
  28. eric says:

    @Gabby, very well said. But very unlikely to happen here in the Philippines and that is why i think MM is offering an “alternative” solution for now – it’s actually a preventive measure of sorts if you think about it.

    interestingly, i am actually handling a case now where my aunt’s card was stolen in HK and swiped for 100k php worth of goods (LV bag, etc.) We obtained the charge slips and showed how drastically different the signatures were but the credit card company avoids this fact and simply points out the terms and conditions (reckoning point when not liable which is only AFTER reporting) that you agree to upon getting their card. I have replied telling them that even if they sue my aunt, we will inevitably file/implead the merchants/stores involved since they did not ask for identification and did not bother comparing the signatures (a sample of which is found at the back of every card). So in the end, we told them to go after these negligent stores instead to fast track recovery and payment. No reply yet so we will see.

    another related topic, card companies are now issuing virtual cards specfically only for online transactions since online fraud/identity theft is getting rampant . basically these are akin to “extensions” of your principal card but with a much lower limit (like 20%) so if you fancy buying small things on auction sites or buy airline tickets your exposure will be much lower. i think this is more of a tool to protect the companies instead of the consumer since online credit card fraud is much easier to defend – i know this from experience and the credit card company simply writes it off and change your card (to get a new number) in the hopes of preventing future hacking.

    May 17, 2011 | 2:19 pm

     
  29. Gigi says:

    MM, I didn’t know that! Whenever I ask for the lowest possible limit, they give me a 6 digit number. Do all banks allow a cardholder to downgrade to 5 digit amount?

    May 17, 2011 | 6:56 pm

     
  30. Marketman says:

    Gigi, yes, I am pretty sure your credit card company should be able to lower your limit to WHATEVER you want, after all, it is YOUR account and your RISK. I have heard of companies that claim they have to get approval from superiors, to check with others, and frankly, I find that utterly absurd. To protect yourself, send a letter with the credit limit you want directly to the bank or your account officer if you have one, and have it received. That way, if something bad happens, you have proof that you had only agreed to XXXXX credit limit. That’s what documentation I had with the situation described in the post above, and I suspect that was one of the main reasons the bank credited us with PHP42,000+ after they allowed serious and repeated breaches to the credit limits… If that fails, and you have multiple cards, try telling them you will cancel the card if they can’t lower the limit. If you are a desired client with good payment history, they will be loathe to lose you… Wait till you read what cards I just picked up for our crew (supplementary cards), and what limits they have, and no fees to boot… all the result of recent run-ins with a credit card provider.

    May 17, 2011 | 8:54 pm

     
  31. present tense says:

    I have personally complained to the BSP about some CC predatory practices, and the CC shaved off several thousand. The wording used by CC is quite different from a layman’s understanding of the same word. And there is a legal aspect to it I understand. Remember that your call is being monitored or recorded and agreeing to the CC terms will be construed as proof of your acceptance and conformity. Even if such a word has a different meaning altogether to both yourself and the CC.

    May 18, 2011 | 8:38 am

     
  32. Marla says:

    I took your advise on the earlier post and lowered my credit limit. Lo and behold, several months later, it was higher that what I requested. Apparently, you have to send the credit card provider notice every 6 months because the “system generated increase” eventually takes over.

    May 18, 2011 | 12:59 pm

     
  33. Abcd says:

    I have 2 credit cards. One from Eastwest and another from Allied Bank. I did experience overlimits with Eastwest but they always call me to settle the excess before my statement date. Now for Allied bank, I have never experienced it. And it seems that Allied bank fraud analysts are very good. I once charged a ticket in Hongkong and the terminal they charged my card to belonged to a gasoline station. The following morning, they called me to inform me that they suspect my card was compromised and had it cancelled and that a new one was on the way. When they mentioned a charge at a gasoline station, I told them that I didn’t buy anything from a gasoline station only to realize later that the airline ticket i bought inside the airport was swiped in a terminal under the name of the gasoline station. I later called to inform them that the transaction was legit. I really felt secure with them cause they do look after your welfare. In fact they are the only credit card in the country where you can insure your CC and ATM in case of theft or unauthorized charges for just PhP 10.00 per month. Also, the dual currency feature is also excellent. You get to pay in dollars what you buy in dollars. Some banks have as high as 5% conversion fee for foreign currency transactions which is another cash cow for them. Imagine if you bought something at 1000 USD. You actually pay them an extra 50 USD for converting it to PHP.

    And by the way, Eastwest bank takes 18 months before you get a credit limit increase. For Allied, you only need to request it. My only gripe with Eastwest Bank, poor customer service .

    Jun 22, 2011 | 12:40 am

     
 

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