"It is understood by the credit cardholder that he has the obligation to pay."
Under the Philippine Credit Card Industry Regulation Law, a credit card refers to “any card or other credit device intended for the purpose of obtaining money, property, or services on credit” (Section 5(g), Republic Act 10870). More than the ability to purchase goods or obtain services, the use of a credit card indicates that it is on credit and the credit card issuer will pay the seller the value of the goods or services.
It is understood by the credit cardholder that he has the obligation to pay the credit when he receives the billing of the credit card issuer. Before issuing the credit card, the credit card issuer must observe the know-your-client (KYC) procedures and exercise diligence in ascertaining whether the applicant has a good credit standing and is financially capable of fulfilling his credit commitments (Section 7, Republic Act 10870).
In shopping malls prior to the pandemic, one will be able to see agents of the different credit card issuers approaching shoppers and offering them the chance to have a credit card. They will try to convince the prospective credit cardholder that the process of having a credit card is swift and will just take a few minutes of his time. The agent will then guide him in answering the fine print application form which the latter will hardly read.
In the course of accomplishing the application form, the agent will ask the prospective cardholder the maximum credit limit that he needs. The agent will inform the prospect that if the credit limit is small or minimal that he foresees approval of the application in several days. However, a request for a higher credit limit will entail submission of financial documents to show capacity to pay.
To someone who is cash-strapped, having a credit card is an opportunity to stretch the use of a dwindling amount of cash. If he knows how to handle his finances, the credit card will be useful for emergent needs such as hospitalization, medicines, groceries, and tuition fees. It may also be used to purchase appliances that are outside the family budget since it can be put on a deferred payment scheme with zero or fixed interest rates.
However, having a credit card may be one’s worst nightmare. If a card user does not pay, in full or on time, the outstanding balance shall earn finance charges and fees (Section 10, Republic Act 10870). No matter how small the outstanding balance, it will earn finance charges and interest. Hence, an outstanding balance of just a few hundred can balloon to a few thousand if left unpaid for several months.
To avoid billing surprises, the credit card issuer must indicate in its billing statement that payment of only the minimum amount due or any amount less than the total amount due for the billing period, would mean the imposition of interest and/or other charges. The following form must be printed in the billing statement "[I]mportant Reminder: Paying less than the total amount due will increase the amount of interest you pay and the time it takes to repay your balance" (Section 11 (h), Republic Act 10870).
To avoid unnecessary finance charges and interest, the credit cardholder must pay his outstanding balance on or before the due date. If the payment due date falls on weekends and regular national holidays, the payment due date is automatically moved to the next business day. Payment through any accredited payment centers of the credit card issuer shall be considered as payment on the same date (Section 23, Republic Act 10870).
A common problem with credit cards is the possibility of being lost or stolen. In case it happens, any transaction made prior to reporting to the credit card issuer shall be for the account of the card holder (Section 15, Republic Act 10870). This is the reason why most of the customer service phone lines of the credit card issuers prioritize the reporting of lost or stolen cards. Prompt reporting is strongly recommended because the cut-off of any disputed transaction is determined by the time and date of the report.
For any discrepancy or billing error, credit cardholders have up to thirty (30) calendar days from the statement date to report any error or discrepancy in their billing statement. The credit card issuer must take action within ten (10) business days from receipt of such notice (Section 18, Republic Act 10870). To easily correct a billing error or discrepancy, the credit cardholder must keep his credit card receipts for the next billing cycle or sometimes another subsequent billing cycle to cover late postings of merchants.
It is the duty of the credit card issuer to keep the data of the cardholder strictly confidential except when: (a) the disclosure of information is with the consent of the cardholder; (b) the customer information is released, submitted or exchanged with credit information bureaus, industry associations, or card associations; and (c) ordered by a court of competent jurisdiction or any government office or agency authorized by law (Section 16, Republic Act 10870).
There is no breach of confidentiality when the disclosure to third parties are: (a) to assist or render services to the credit card issuer in enforcing its rights against the cardholder; (b) to insure the credit card issuer from cardholder default or other credit loss, and the cardholder from fraud or unauthorized charges; and (c) to investigate fraud or unauthorized activities (Section 16, Republic Act 10870).
Horror stories abound about the manner by which the collecting agents of credit card issuers collect the unpaid debts of their cardholders. Someone told me that a collecting agent threatened to enter their home and take their personal property as payment for their credit card debts. Another received threats that he will be arrested and jailed if he fails to pay his credit card debt.
A credit card issuer or collection agent must not harass, abuse or oppress any person or engage in any unfair practices in connection with the collection of any credit card debt. The credit card issuer may resort to all reasonable and legally permissible means to collect amounts due them under the credit card agreement. In the exercise of its rights and performance of duties, they must observe good faith, reasonable conduct and proper decorum and refrain from engaging in unscrupulous acts (Section 19, Republic Act 10870).
The credit card issuer may engage qualified third party service providers/collection agents for the purpose of assisting or rendering services in the recovery of unpaid obligations and enforcement of rights against the cardholder (Section 20, Republic Act 10870). It is the duty of the credit card issuer to inform the cardholder in writing of the endorsement of his account to a collection agency. The duty of giving prior notice to the cardholder applies to the endorsement of the account from one collection agency to another (Section 21, Republic Act 10870).
The notification shall include the full name of the collection agency and its contact details. The requirement to notify a cardholder in writing about the endorsement of the account to the collection agency shall be included in the terms and conditions of the credit card agreement. At no instance shall the credit card issuer refer the collection of an account to more than one collection agency at any one time (Section 21, Republic Act 10870).
The measures taken under the Philippine Credit Card Industry Regulation Law were introduced to avoid harassment toward and an unreasonable manner of collection from cardholders. Sadly, even lawyers who entered into contingency arrangements with the credit card issuers have employed improper decorum and unreasonable conduct against cardholders. In demand letters, lawyers use offensive and threatening language that causes anxiety and apprehension in the cardholders.
The situation will be aggravated when the cardholder gets to talk to the staff of the lawyer who in turn paints a doomsday scenario if he ignores the demand to pay. There are also collection agencies who purchase the bad debts of the credit card issuers at minimal price before the debts are written-off in the latter’s financial books. Having forked out money it is expected that the collection agencies will be extremely aggressive to profit from their investment.
There are times when the cardholder can no longer keep his credit card account in good standing, and so the best option is to terminate or cancel the account. However, the cardholder must still either pay in full or enter into another agreement for payment of the outstanding balance and new purchases either through a one-time payment or via installments within a fixed period of time (Section 25, Republic Act 10870).
It is good to have a credit card to augment one’s financial needs, but a cardholder must be conscious that the money he uses is on credit and he has the obligation to pay it when it is due. Like a regular loan, it has to be honored with commitment in order for a cardholder to maintain a good credit standing. Otherwise, he may be surprised to face legal actions against him.