Pushing credit cards

More publicity should be given to the growing number of restrictions imposed by the Bangko Sentral ng Pilipinas (BSP) on credit card promotions.

Some of you may have experienced a credit card (or credit cards) being sent to you with a letter saying you have been “preapproved.” You can’t even remember when you applied for such a card, but who cares, it’s a nice-looking card,

appearing very prestigious, and it’s apparently free.

Even better, you’re told in the

letter that you don’t even need to activate the card because it comes to you “live,” ready to use right away.

Let me tell you about an experience I had last year. I was to deliver a keynote speech at a medical conference when a credit card agent approached me, offering a preapproved credit card.

I told her I was busy preparing for my speech, but she insisted that our conversation would be “sandali lang” (brief). I asked if she was offering a BPI card, which I had been considering, and she said I could indeed choose from any bank, as long as it was the credit card company she represented. I can’t remember now if it was Master’s or Visa’s, the two more aggressive companies.

Okay, okay, BPI then, I told her, but hurry because I start my talk in 10 minutes. She dashed off a series of questions, filling out the form for me, and indeed, it took only a few minutes. I went off to deliver my speech and left the convention center, forgetting about the credit card.

A few days later, I received a Metrobank credit card. Since I was getting these preapproved cards every so often, I didn’t think much about it until I remembered the woman at the convention center. Hmm, I thought, have BPI and Metrobank merged?

I never used the card, and a year passed. Then I got a bill for P3,500 for the annual membership fee, which I will not be paying—and this is fair warning to Metrobank and/or the credit card company not to try to collect.

Last year the BSP issued a circular banning these preapproved credit cards. The circular mainly targeted those obnoxious agents in malls and conventions offering you the cards.

Free?

There was a time when credit cards were almost impossible to obtain unless you had a million pesos or so in the bank. Then the banks and companies began to lower the requirements until it got to the point where they were practically giving away the cards.

These soliciting agents weren’t limited to conferences. They were all over the malls, and I still spot some of them

occasionally. I don’t know how they operate now.

Why were (I hope the use of “were” is correct) the banks and credit card companies so aggressive?

The answer is simple: quick profits, especially in a country like the Philippines where people are quick to spend money, for social prestige especially.

What the companies do, though, is to convince you that they are doing you a favor, giving you a “free” card and reducing your need to bring cash. Even more importantly, the credit card companies make you think that consumer products are now more affordable through a credit card. Can’t

afford that latest iPhone model? Don’t worry, we can give you six months to pay, no interest. If it’s an older model, there are even 12- and 24-month deals.

Notice how it’s the store sales agents and clerks who offer you the no-interest deals. Some even throw in a deal where you can delay the first installment for up to three months.

Who can resist an offer where, instead of paying P30,000 outright, you can pay only P2,500 a month over a year?

Unless you go around the stores and realize there are dealers who will give you the phone for P28,000 if you pay outright. That deal of “12 gives,” no interest, actually has hidden interest charges of about 6 percent.

It’s worse, of course, if you default on a payment because the credit card company slaps you with a 4.5-percent interest charge per month. Over a year, that can be 50 percent (I’m not even compounding the interest here), almost as bad as those “5-6” usurers.

Schools should use credit cards to teach students math… and budgeting.

Credit cards should be seen mainly as convenience, so you don’t need to carry around too much cash. But do be vigilant, recognizing how the cards feed on our impulsiveness, to buy something we want (rather than need) since, anyway, we don’t need to pay outright. Instant gratification, delayed pain.

That P30,000 purchase, even if distributed over a year, is still P30,000, if you pay on time.

I’ve noticed that some schools even offer tuition payments through installments by credit card. I’m ambivalent about this. I know it can be helpful to divide P120,000 (the annual tuition in some private schools) over six months, but such schemes can make parents, especially younger ones, complacent. If you are one of those parents who can use the relief of staggered payments, do exercise discipline and restraint in your other purchases, to make sure you do keep up with the tuition payments.

(At the University of the Philippines, apart from socialized tuition, we offer full tuition loans, without interest if paid within four months.)

Trapped

Those staggered payment schemes have contributed to mounting credit card debts. It all adds up—a phone, a microwave oven, that wide-screen 3-D TV, that birthday

party, that trip to Hong Kong Disneyland. Then you realize you’re trapped, unable to pay. I know of Filipinos who are working overseas and sending remittances home, the bulk of which is to just pay off such debts.

The BSP is worried, not so much about the consumers as about the banks, which are exposing themselves to too much risk, and endangering the whole economy.

Last August, the BSP came up with additional regulations, such as banning unsolicited calls from banks to clients offering them the cards as rewards for being a loyal customer. The new regulations also ban the mailing of “live” credit cards.

I like the BSP’s use of the word “live.” You can think of the credit cards as little cute Smurfs that make shopping a bit more convenient, or as little monsters ready to wreak havoc on your household finances.

Think twice, too, about the “convenience” angle. Once, in one of those unisex hair salons, I read in a women’s home magazine an article recommending that you leave the

following at home when you go to the supermarket: children (who pester you to buy this, buy that) and credit cards (more dangerous because they work on your subconscious, telling you, hey, it’s okay, you can just charge this, charge that).

It was striking that the men’s magazines had none of such advice, and were filled instead with ads urging readers to buy the latest gadgets. The women’s magazines should also offer this advice: Leave your men at home when you go to the mall.

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