Credit card myths and follies

We had some quick reactions to the column on credit cards last Monday. Here’s from Anthony Angeles, one of our readers. We have deleted any direct reference to the bank involved.

“I am just reading your article on credit card debt being worse than usury. This is a timely and correct article which many of our country men suffer. In advanced countries, it is a law for credit card companies to make sure that all charges and how charges are computed to be clearly stated.

“You mentioned that the rate is 3.5 percent per month. Yes, this is the advertised rate. However, the actual rates vary and can be a lot higher. Recently, I had a bill from my … MasterCard where I was being charged a whopping six percent of my actual bill. As my office normally handles the payment of my card, I could have missed this.

“However, when I saw it, considering that most of the time, I pay the full amount, I was really surprised. Upon clarifying and complaining to [the bank], they mentioned that the 3.5 percent is only a reference rate. The actual rate is computed based on a convoluted formula which I could not even understand.

Not 3.5% but 6%

“And to top it all, as my office issued a check payment on due date, it was declared a late payment which I needed to pay the full amount including the six percent finance charge before they even consider my complaint as they say it is a different group handling it.

“That is the only time I can then speak to the center to request for [the bank] to waive the amount which they claim they will on my next bill. (I will still need to check if they did this on my next bill.)

“So for those who don’t even check their bill and only pay for the minimum, they are paying more than the advertised 3.5 percent. I have my [bank] bills to prove it and a fax from them trying to explain how they have arrived at my finance charge rate of 6 percent. 

“I think that since they were willing to waive all these charges immediately on my next bill, I am sure this is one of those rackets that these companies are doing. You would be surprised to see that really it’s not only 3.5 percent.

“Thank you and I hope you continue to inform the public of these ridiculous fees.”

OFWs get hooked

Another reader, Gary Suzuki, sent us the link to an article that appeared in the New York Times written by Kuni Takahashi. We are reprinting parts of this article that shows how our countrymen abroad are getting clobbered by credit cards

Gary writes: “I just read your column on credit card debt. Here’s a link (http://www.nytimes.com/2011/08/21/world/middleeast/21debtors.html?ref=jasondeparle) to an article on “Migrants in United Arab Emirates Get Stuck in Web of Debt” that might interest you. The people used as examples in the article are Filipino.”

We reprint parts of the article for those who don’t have the time to go online. Dateline is Abu Dhabi, United Arab Emirates.

“Before she arrived in this mecca of migrant labor at age 48, Evelyn Naces, a Filipino nurse, had never owned a credit card. Soon she had 14 of them — and like thousands of other foreign workers here, a trip to debtors’ prison.

““When they put me in shackles, that was the worst,” said Ms. Naces, who had $27,000 in unpaid bills, mostly from helping her grown son start a business back in the Philippines that later failed. “I felt so degraded.”

“For years, banks all but threw credit cards at the foreigners who come here in droves to work the malls and fill the office towers. The workers, many of them raised in poor countries and new to easy credit, spent beyond their means. Staggering losses followed, with jail terms common for those who could not pay.

“Whether cast as reckless lending or heedless borrowing, their stories offer an unusual glimpse of the hidden emotions — webs of pride, guilt and family obligation — that follow millions of migrants across the globe.

“Some shopped for pleasure, but many ran up bills by answering pleas from poor relatives for needs as varied as livestock and medical care. The ability to say “no” seldom felt like an option. Still others, feeling uprooted, built houses back home that they might never occupy. Some mothers who left their children behind tried to salve guilty feelings with expensive gifts.

Going deeper into debt

““The family back home often thinks the migrant is earning a lot and raises its expectations,” said Grace Princesa, the Philippine ambassador to the United Arab Emirates, who has made debt reduction a part of a government campaign to improve conditions for migrants. “The poor migrant goes deeper into debt just to answer. It’s a vicious cycle.”

“Such was the case with Ms. Naces, now 52, a single mother who left her infant son with her parents and went to Saudi Arabia to make money to support him. By the time she arrived in the Emirates in 2007, he had already grown up without her.

“Though she could not get a credit card in Saudi Arabia, in the Emirates she could scarcely avoid one. Salesmen stalked nurses outside hospitals and worshipers after Mass at a Filipino church.

“Ms. Naces bought furniture, clothes and meals for herself, but her biggest expenses involved her son, whose affection she feared she had lost. She built him a house in the Philippines and bought five cars with credit cards so he could start a rental business. “I felt guilty for being away and not raising him,” she said. “I was trying to compensate.”

“They both went to jail — he on drug charges and she for debt.

“While the government does not disclose how many debtors have been jailed, a legislative body several years ago estimated that 10,000 of them were in the courts or prison. The Dubai police chief has complained that debtors needlessly clog the jails, and employers have warned the Ministry of Labor that debt problems distract employees.”

Discipline in the use of credit cards and loans

What can I say? I hope more effective programs are put in place by government, NGOs and private employers to educate our OFWs and local workers on the need for discipline in the use of credit cards and other forms of loans.

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Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.