I wrote the post below about 3.5 years ago, and I am posting it again today for a number of reasons, one of which is that I am in the middle of another credit card situation and am working it out as I type this. However, I wish to reiterate (to a much larger audience/readership of Marketmanila.com today) several risks that put the onus or burden on the consumer rather than the credit card company. I am getting so sick and tired of credit card companies charging what are in my opinion close to usurious interest rates, using profits from responsible consumers to fund unusually high delinquent accounts and yet still make very high profits, AND effectively placing the bulk of the risk of loss on the consumer even in cases of theft, forgeries, etc. I wish whoever wins the May elections for President will support a NEW consumer rights bill with respect to credit cards… it would affect/protect some 2+ million productive members of Philippine society and force big business/banks/credit card companies to act in a manner consistent with other countries with extensive credit cards businesses around the the globe.
Here’s a bit of a reminder in case you have had blinders on lately:
!. If your current credit card company charges a 3.50% Monthly (compounded) interest rate on outstanding balances, you are effectively paying an annualized interest rate of 51.11%!!! Considering that the best deposits on your funds today are probably yielding some 2-3% per annum, that translates to a gross spread for banks of some 48.00% per annum! If you are a prime customer, and are only being charged 3.00% per month, then the annualized rate is 42.58%! If you miss making a monthly payment on time, the late fees and interest rates of some banks at 7.5% are EQUIVALENT to an annual rate of over 130%!!! These rates are comparable/even far worse than what pawnshops charge and other forms of “fringe” financing. It is interesting to note that the term “USURY” is often defined as “charging excessive or exorbitant rates of interest”. Now when are lawmakers going to decide what is usurious or not? Calling any credible congressmen… I would be willing to volunteer my analytical and financial background for FREE if you want to make these credit card laws more consumer friendly!
2. Credit card companies in the Philippines appear to have very high loan losses on credit card outstandings, estimated between 15-20%, so it seems that the credit quality of borrowers is something that banks don’t seem to strictly manage. Why should good customers who have paid their bills on time, be penalized with high interest rates to make up for an unusually high delinquency rate? Having said that, even if 20% of all outstandings aren’t paid back, since the card companies are charging some 40%+ in interest, they STILL potentially make a lot of money on their credit card businesses.
3. The Philippines is one of the few countries where the credit card companies have CLEVERLY managed to get LEGISLATION that is ANTI-CONSUMER in that if your credit card is stolen and used by a thief, it is the CARDHOLDER who is liable for the charges until the credit card company is verbally or in writing advised of the loss. Therefor, no merchant, no credit card company has the legal incentive to PROTECT its clients, rather they have the RIGHT to go after innocent cardholders, more on this, read below…
The general intelligent wisdom is that one should carry “plastic” or credit cards instead of cash, so that if you are pickpocketed or murdered and your wallet is stolen, then the thief gets your cash and possibly attempts to use your credit cards. In most intelligent, logical and consumer friendly societies, any fraudulent use of your credit card would not be your liability and the credit card companies swallow the loss and use their insurance or their specific reserves to cover such instances. That makes sense, right? In fact, credit card companies in the United States specifically tell you that you are only liable for say $50 in case of theft, whether or not you had the chance to call the card company before the thief got to use your card. That would be a reason why one would carry plastic instead of cash. But we live in the Philippines, the land of occasionally utterly stupid, senseless and bizarre credit card and other laws put in place or perpetuated or unchanged by some idiots who themselves have been reported to charge on their local credit cards outrageously expensive watches for their teeny bopper kids while they “serve” their countrymen…
What am I blathering about? It seems that in the Philippines, if you own a credit card and it is stolen, the cardholder is completely liable for all the fraudulent charges up until your credit limit unless you have already phoned the credit card company to warn them you have lost your card. So what if your card was stolen from your hotel room or gym locker room while you were playing tennis and you didn’t notice the loss till the next day? Yup, you got it. It’s completely YOUR ass that is on the line. In other words, if you don’t inform the card company, they hold you liable for the losses, and that is the ridiculous law at the moment. In other words, it is actually potentially far more costly for you to carry a Philippine credit card as you could lose thousands and thousands depending on your credit limit rather than just the cash in your wallet.
When I learned of this pathetic situation a few months ago when acquaintances lost their wallets and thieves racked up massive bills on their behalf, I intentionally started to leave most of my local credit cards at home. I didn’t put a post on the matter then as it would seem like I was just harping at a law that is impossible to change. But events in the past 24 hours lead me to post this warning for the benefit of my readers and your friends. I kid you not. If you have say a PHP100,000 limit on your card and someone else charges on it, you will be required to pay that PHP100,000 or be in violation of the law as it is currently written; in fact, in theory, you would be the criminal with the liability to the credit card company.
Never mind that your card was stolen, that the charges were fraudulent, that the signatures are false and that you had an unusual level of charge activity…it is YOUR ass on the line. And for that privilege you pay a hefty annual fee and a nearly usurious (in my opinion) 3.5% per month interest charge on any outstandings (that translates to over 50% in compound annual interest for those of you who never bothered to calculate it!). So what good is the local credit card if your potential liability is worse than the cash in your wallet??? Why can’t lawmakers read this and do something about it? Where do all those annual fees go if not to put measures in place to protect customers? Out-bloody-rageous, if you ask me.
Here are Marketman’s serious tips to help insulate you from unnecessary credit card losses; please forward to your friends if you care about them:
1. Check your local credit limits right this instant. If the total credit limits far exceed your normal or even peak usage, call your credit card companies IMMEDIATELY and ask them to lower your limits to a level you can truly manage.
2. When you go out and it is not likely that you are going to max out your cards, do NOT bring all of your local cards with you…leave some safely put away at home.
3. Every evening when you get home, check your wallet to make sure all of your credit cards are in their slots, if not, call the credit card company immediately even if you are unsure where your card is. It’s easier to have a new one issued than to risk a PHP50,000 charge on your stolen card.
4. In a restaurant, always leave those faux leather jackets/folders that they use for credit cards OPEN on the dining table, this will make you more cognizant of the fact that you may have left your card still in the jacket.
5. Beware of unsolicited increases to your credit limits, reject these unless you really use the additional limits. Just think, if 500,000 consumers are given a PHP20,000 increase that is PHP10 billion more in open credit limits and if only 1% are subject to fraud, that is a potential PHP100 million that the credit card companies can come after clients like you and me for!
In other countries where they protect consumers, it is fine to have huge credit card limits for that occasional, “just in case” need. In the Philippines, it’s best the have the lowest possible limits instead.