SCMP Wednesday, August 16, 2000


Credit card tricks

No matter how many times people are urged to "read the small print" before they put their signature to any form of agreement, only a minority take the advice.

In drawing attention to the traps unwary credit card holders can fall into by signing deals without understanding the terms, the Consumer Council makes the point again. This time, it is calling on the companies concerned to set their house in order, and asking the Hong Kong Monetary Authority to make sure that they do. Stricter controls are well overdue, although it might have been expected that the major banks and institutions that issue the cards were capable of self-regulation, rather than having to be told to play fair.

By its very nature, "small print" is long-winded, legalistic and tedious. It isn't until there is some hitch in the agreement that conditions imposed by the contract suddenly become significant. By then, the time for second thoughts or renegotiation is gone. It is often not until customers find, for one reason or another, that they are unable to pay back the money they have spent on their card that they begin to read the terms outlined on the back of the invoice.

Until then, many debtors have no idea of the amount of interest the banks and institutions that issue these cards are able to charge; or what other financial obligations are imposed on them when they are in default. In an extreme example the council quoted, interest charges could soar to 86 per cent per annum on a $10,000 debt repaid within 30 days. And when a case goes to law, the cardholder is also held responsible for all the legal costs the company incurs in securing repayment.

It tends to be money lenders who have a reputation for imposing a high return on borrowers. Whereas, in fact, those firms are subject to controls on interest rates from which the supposedly more responsible banks and finance companies are exempted.

And, as a High Court judge remarked in a landmark case last month, that omission has allowed them to charge "extortionate" interest rates for credit card and personal loans. Driving customers into deeper debt is hardly a socially responsible act, but it is not the only area in which these institutions offend. They have come in for a lot of criticism over the way they allow debt-collecting agencies to recoup the money they are owed.

Such swingeing criticism from a senior judge, plus the scrutiny of the Hong Kong Monetary Authority may prevail upon them to reassess procedures.

And since a court has ruled that some credit card clauses are unenforceable, clients should be more aware of their rights. That may be the most compelling argument for the institutions to change their ways.