SCMP Wednesday, August 16, 2000
Sky's the limit on credit-card charges
Credit-card holders are being hit with fees and interest charges of up to 86 per cent a year, the Consumer Council said yesterday as it demanded a review of the industry and a ceiling on the charges it levies.
Fine print in card contracts gave banks the right to impose a range of confusing and unexpected fees and to bill customers for hefty legal fees they run up chasing debts, the council said.
Dr Michael Tsui Fok-sun, deputy chairman of the council's publicity and community relations committee, said the Hong Kong Monetary Authority had been asked to look at the "true costs" of credit cards and consider a cap.
"We have unveiled a myriad of interest rates and charges that are at the disposal of credit-card companies. Often such charges and the methods of their computation are far too unclear and complex for the vast majority of credit-card holders to understand," he said.
"Often they say interest is two per cent [per month] and you think at the end of the day you only have to pay 24 per cent per annum, but this may not be true. Consumers ought to be aware that, with the handling fees, they're paying more than what they think they're paying."
Handling fees and service charges sent the cost to customers soaring. In an extreme case, taking a cash advance of $10,000 and paying it back in 30 days would cost $710 extra, the equivalent of a yearly interest rate of 86 per cent.
"That's very high, and it's actually higher than the spirit of the law," Dr Tsui said. Moneylenders are not allowed to charge more than 60 per cent a year interest, but the law does not apply to banks.
A council report released in April 1996 said Hong Kong credit-card customers paid "excruciatingly high" interest rates compared to those abroad - in some cases between 37 per cent and 127 per cent higher than consumers in the United States or Japan.
"We found that there is no real restriction on the ceiling of actual interest being charged by credit-card companies and no ceiling limiting their expenses in the recovery of debts," Dr Tsui said.
Credit-card contracts came under the spotlight last month, when a High Court judge ruled that Hang Seng and Standard Chartered banks had "unconscionable" clauses in their documents, making customers responsible for all legal fees the banks racked up in pursuing a debt.
Dr Tsui said all 20 of the credit-card contracts studied by the council included such a clause. "That basically means that if you owe these banks money and they take action against you to recover that money, you are liable to pay all expenses incurred in recovery of the debt," Dr Tsui said. "To take an example, even if you owe a card company only $100, it may cost thousands of dollars in legal costs if your bank decides to take your case to the High Court and hires expensive lawyers.
"Credit card contracts are in small writing, two or three pages long and full of legal jargon. It's very difficult for the layman to understand everything in them," he said. Some banks do not provide the contract terms until customers receive their credit cards.
Since the court case, the Monetary Authority has agreed to review banks' use of such clauses, and Dr Tsui said the council had asked that it also look at interest rates.
"The Monetary Authority is in agreement that we need to see if there is a way to set a limit on the total charges, including both handling charges and interest rates. They are . . . looking at whether they should cap the amount that a debtor has to pay at the end of the day."
Hong Kong Association of Banks chairman Raymond Or Ching-fai said it was not fair to include fees and charges in a calculation of interest, and he said imposing a 60 per cent cap on interest would be considered.
"I have no objection to that," he said. "But I don't think you can impose a cap on fees, because obviously competition from various credit-card issuers has been fierce."
Mr Or said the association would co-operate with the Monetary Authority's review.