BSP cracks down on credit card firms

The Bangko Sentral ng Pilipinas (BSP) is cracking down on credit card companies, ordering issuers to disclose hidden fees and set the guidelines for collecting receivables.

In the wake of the plastic shock sweeping across the country’s largely cash-based consumer market, the BSP has been slowly tightening the noose around credit card companies as delinquency rates rose to record levels.

BSP officer in charge Alberto V. Reyes told reporters that the Monetary Board has approved a set of rules intended to weed out "excessive practices" of banks and their credit card affiliates.

"Among the reforms is the requirement for them to reveal the true foreign exchange conversion rate for credit card transactions," he said.

Reyes said consumers have been complaining of the lack of transparency in the computation of foreign exchange rates for foreign currency-denominated credit card transactions. The BSP said credit card firms earn a substantial income by charging a premium on exchange rate conversion that credit card users are not usually aware of, especially new holders who have not been exposed to credit card use for long.

According to Reyes, the MB-approved rules also seek to set a standard operating procedure for the collection of past-due accounts following complaints lodged by cardholders against collection agents.

Collection-related complaints range from insults to deliberate humiliation and even loanshark practices of intimidation and threats.

"The important policy change here is that it will include not only banks but quasi-banks and their affiliates," Reyes said.

BSP’s existing rules cover only banks that issue credit cards and not collecting agents that are often hired to deal directly with delinquent cardholders.

Reyes said the BSP wants credit card issuers to fully disclose, among other things, their interest rate charges on a per annum basis, instead of the common practice of trying to attract clients with low rates computed on an "add on" basis, which he said could be deceptively low.

Past-due credit card receivables have become problematic for both the BSP and credit card issuers as consumers who have only recently begun using these plastic cards suddenly find themselves in over their heads in debt.

Based on the latest available data from the BSP, credit card receivables of the entire banking sector amounted to P57.736 billion in the first quarter of the year, increasing by a hefty 20.07 percent compared to the same period last year.

However, the BSP report also showed that past due receivables increased even faster, surging by 65.95 percent to P13.776 billion compared to only P8.301 billion last year.

According to the BSP, the combined receivables of both universal banks and commercial banks increased by 20.55 percent from P45.979 billion last year to P55.427 billion during the first quarter this year.

However, the past-due receivables of universal and commercial banks surged by 70.37 percent during the period from only P7.767 billion last year to P13.233 billion this year.

These numbers mean that more credit card holders are having difficulties settling their credit card payments and these delinquent holders are habitual, with past due accounts lasting over six months or longer.