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BSP’s Circular No. 702

 “If you pay for what you purchased using your credit cards in full and on time, there is no interest charged for the convenience of being able to pay for your purchase using a credit card. This isn’t a secret!”

by Ducky Paredes

The recent promulgation of Bangko Sentral ng Pilipinas (BSP) Circular No. 702 on credit cards ought to remind us all about the proper use of plastic money. In a nutshell, the BSP circular dictates that: banks will no longer issue pre-approved credit cards; issuing banks shall issue a warning about the non-payment of credit balance and a table of applicable fees in plain language; and lastly, banks must inform cardholders of the endorsement of their accounts to a collection agency or specific agent.

These strict rules are all in line with what the Credit Card Association of the Philippines (CCAP) wants, that is, better relations between credit card companies and cardholders – but I am somewhat alarmed by the first provision of the circular not to issue pre-approved credit cards. Admittedly, while it is ideal that a credit card company does its due diligence in screening for cardholders, our current financial system actually does not have any way of determining a prospective cardholders’ good credit standing.

 We’re still living in the age of the black mark; either credit history is bad or spotty, or it doesn’t exist at all. How could it? There is no centralized credit bureau that can provide information that can be used by the local banking industry. There are private firms that evaluate debt issues of companies and local government units, but their efforts do not include the individual garden-variety consumer.

 Banks conduct their own credit investigation, at their own expense. The BSP circular forces banks to spend in order to find out who can spend more money so that they can be issued credit cards. Something seems not quite right with that! Now that all banks are required to undertake this expense, I won’t be the least bit surprised if the interest rates charged on credit card purchases increase, This will be followed by credit card holders complaining all the more and all over again.

 Personally, it baffles me how a lot of people use their credit cards – as if the card represents free money. Granted, they are essentially free short term loans – but whoever said that you don’t have to pay for what you purchase? If you don’t pay a short-term loan on time, that’s when the interest due starts to build, and sooner rather than later, you’re in a lot of debt that was easily avoidable by just paying your bills on time.

Credit Cards give one a lot more than just available cash, it also provides purchase protection, travel and car insurance, theft deterrents, miles, reward points, cash-back – along with that interest-free loan if you pay what you owe every month — in full. What’s more is that they allow for float, sometimes up to 25 or 35 days, depending on your card provider. Your actual money can be earning interest in a money-market account while the credit card companies pay your expenses.

Float is used to advantage by seasoned money managers, people who also know that the biggest part of owning a credit card is self-control.

 It would not be too farfetched to assume that those who are trying to regulate the credit card industry to Orwellian levels are the same people who are already greatly in debt. Obviously, the words “discipline”, “willpower”, and “restraint” are not generally included in their vocabularies. Why should we insist on further regulation to give these heretofore irresponsible people financial tabula rasa at our economy’s expense?

There is a great amount of bad press about credit cards as being the Big Bad Wolf in a struggling economy such as ours. Congress for instance has been mulling the idea of putting a cap on the interest rates that credit card companies can charge on past due amounts. But, consider the alternative.  What would happen if the credit card providers just got fed up with this country and left?

 Is there any proof that capping rates at one percent, as proposed by Members of the House and the Senate, would actually benefit the country and not the feckless spendthrifts that have driven themselves so deep in debt that they seem to want to spread the misery by making life hard for other innocent third-parties?

A credit card is a better, safer, more convenient form of cash; just because no tangible tender changes hands at the time of purchase doesn’t mean that you don’t have to pay for it in the end. People need to understand the power and freedom that credit cards give them. All should just stop complaining about the interest rates.

If you pay for what you purchased using your credit cards in full and on time, there is no interest charged for the convenience of being able to pay for your purchase using a credit card. This isn’t a secret!

In fact, if only everyone who had a credit card gave more importance to paying their credit card bills on time, instead of constantly complaining bout how unfairly credit card companies treat us by charging high interest rates on us poor, suffering, third-warders with our plasma TVs and I-phones bought with these credit cards, that much nicer would our world be.

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Tomorrow, San Miguel Corporation will be treating media golfers to a game at Wack-Wack. This yearly event is almost a must-attend for media golfers. It is one of the times when most of us media golfers get together for a game and a good time, courtesy of  SMC. A generous raffle after the game is another reason for going. See you there.

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hvp 01.11.11


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