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Plastic Promise
[March 20, 2006]

Plastic Promise

(India Today Via Thomson Dialog NewsEdge)He had never been to Barcelona. Or anywhere outside India for that matter. But one fine morning the Bangalore-based businessman started receiving restaurant bills from Barcelona on his credit card. The card company acted uppity: "Do come over with your passport, sir. We have to check it out." He obliged, but may have saved himself the trouble. For nothing happened. The bills from Barcelona-getting bigger every month-continued to rain down. As did abusive calls, threats and the works from the card issuer. He withstood the assault for six months. Finally, out of sheer frustration he decided to join a consumer activist outfit.

He is not alone. There are thousands of cardholders like him across India. They tell the same lure-and-trap stories and sing the same chorus of outrage. Yet saying that the world runs on plastic today won't really be an exaggeration. Flyers, advertisements, telemarketing, SPAM and more, constantly bombard us with credit card offers. And there is one to satisfy your every need, from eating out to frequent flying to even pandering your social conscience. Beyond the convenience factor, is an intangible sense of wealth and power that credit cards can give. Little wonder then that India is one of the fastest-growing markets for plastic. A recent Visa International survey revealed that about 15 million credit cards are in circulation in the country, in the hands of five million people.

Only, now users are no longer playing the role of hapless victims. The clamour for action may have picked up pace ever since the Reserve Bank of India (RBI) seemed to tilt slightly in favour of cardholders when it issued the 2005 Guideline to protect consumers' interest, but at the forefront of this consumer revolution are groups like the Credit Cardholders' Association of India (CCHAI) and the Ahmedabad-based Consumer Education and Research Centre (CERC).

CCHAI started way back in 2001 in a little office amidst the old-world charm of Bangalore's time-honoured business district. Five years down the line, it is busy wiring up the nation's plastic underbelly. There's a flurry up the supply chain-meetings, marches, memorandums, court cases, out-of-court settlements-from Bangalore to Mumbai, Hyderabad to Delhi. "Although the RBI came out with clear ground rules in 2005 to help out credit card users, issuers are still resorting to illegal methods to recover dues," points out C.V. Giddappa, general secretary, CCHAI, and a consumer lawyer by profession. Since last month, CCHAI has been setting up control rooms in cities across India to help out cardholders in distress.

If groups like CCHAI represent the aggressive face of consumer consciousness, the theoretical underpinnings of the movement came from the CERC. "Complaints had been coming in for quite some time," says Preeti Shah, the leading light of CERC and the editor of its consumer magazine, Insight, "but we took it up as a mission about two years back." It was around this time that Korea hit the headlines as a nation on the verge of bankruptcy because of credit card debts. As Shah reveals, "the average man on the street had about 20 cards". The first reports on credit card-induced suicides in India also appeared around that time. "It was enough for us to react," adds Shah.

True to its style, CERC took up a survey. It proved to be a backbreaker, but provided the first blueprint for a dialogue between credit card users and issuers. "Our research revealed that New Zealand had the best legislation on this," says Shah. The survey, along with the recommendations for a model law for Asia, was presented first at the Consumers International, London, two years back. It was then picked up by RBI for its Guidelines, with CERC as the main consumer body on its panel.

If 2005 set the ball rolling, this year promises fresh milestones. The government of Gujarat recently used the guidelines to chalk out the consumer-friendly norms "for strict adherence" by banks and credit card companies. Furthermore, credit card grievances have been brought under the purview of the Banking Ombudsman Act by RBI with effect from January 2006. Suggestions that the RBI will hand over more power to ombudsmen to bring erring credit card issuers to book, are also making the rounds.

Now for the bad news. The consumer activists may well want you to "tear up your card into pieces and send it off to the issuer," but going by the reality on the ground they are in for a long haul. According to a report from GE Money, the size of the Indian credit-card market is growing by 35 per cent yearly. Currently, Rs 30,000 crore is being spent on credit cards. Approximately, 10 per cent of this is being collected as tax. But the spend on plastic as a percentage of personal consumption is under one per cent. In developed nations, this figure is about 10 per cent.

To ensure a deeper plastic penetration, card issuers are busy dangling carrots to users. Differentiation is the latest buzzword, co-branding the new mantra. "With the payment industry maturing, payment cards that suit the lifestyle and lifecycle needs of consumers are necessary for the development of the industry," says Santanu Mukherjee, country manager, South Asia, Visa International Asia Pacific. With such a buzz in the air, it might be time to come to grips with one's cards.

While consumer activists are busy strategising a multi-pronged battle involving courts, media, government and the civil society, they have also come up with an informal "code of conduct" for card users to prime them on the best means to handle the menace.

The first word of advice from the experts is to never allow card issuers to take you for granted. Let your card issuer know that you are constantly on the lookout for better offers and can switch loyalties at any time.

Rule two: don't do anything that'll make it easy for them to catch you on the wrong side. Hence, never assume that a fixed-rate card is fixed forever. A clause in the pre-printed agreement gives issuers the right to change conditions without notice. "We're fighting to remove this clause," says Giddappa. CCHAI wants all terms and conditions to be compulsorily registered with a government registering authority.

Similarly, don't be late with any bill payment. Most credit card issuers impose what they call a "universal default clause" rate hike. If you are late paying another bill-say, a car payment or a house loan-your issuer might spot the black spot on a routine check of your credit report and up your interest rate. Exceeding the credit limit, bouncing a payment cheque, or having too much debt too trigger a rate hike.

Another pitfall is the revolving cards, where you have the choice of paying a fraction of the outstanding amount on the due date. Say you draw a sum of Rs 10,000 from an ATM and decide to pay Rs 500 per month under revolving credit. This is what is likely to happen to you: the daily compounding interest calculations would start from the day of withdrawal. About Rs 400 will go toward interest and service and only Rs 100 for reducing the principal. It will take more than 12 years, if you are prompt in paying the minimum amount due. And what would happen if you pay up even a, minute later than the due date? You will spend the rest of your life unsuccessfully trying to clear your dues. The card issuer will be charging 10 per cent over credit limit and another 4 per cent for late payment. This vicious circle will push you into a debt trap.

Ground rule three is to flex your muscles and assert your rights. So ask to have the due date changed to a time of the month that fits into your bill-paying routine. Giddappa considers this to be of vital importance: "All cards, even those from the same bank, have different billing dates and cycles. This is not disclosed by banks. "Going by the complaints we receive, the due date and bill dates are changed without intimation to users. Fixing a date, therefore, is an urgent necessity," he adds.

When dealing with those sweet-talking direct selling agents (DSA) who vanish into the thin air once a card has been dumped on you, Giddappa warns, "Don't believe the DSAS. Ask for written documents from the bank for any free service." CCHAI has also declared a war on the 'psycho-terrorism' unleashed often by issuers to recover dues. "Call up the police," informs Giddappa, "nobody has the right to enter your premises without a warrant or summons from a court of law."

If you don't wish to enter energy-sapping wrangling matches with your card issuer, keep a watchful eye on every billing process. It is also your best protection against card frauds. The modus operandi is pretty simple: as you hand over your card at a merchant establishment, the fraudster notes your name and the three digit secret pin number printed on the reverse of your card. Along with the details already available through the merchant copy of the charge slip, it's a simple matter for e-savvy criminals to use the information. "But card issuers simply send out a dispute form. As if the liability is solely yours," fumes Giddappa.

Two card rules are at work here. First, the issuer is responsible only if the transaction takes place after notifying their helpline to block the card (but usually cardholders come to know about lost cards much later). Second, there is the clause that if a dispute is not raised within 30 days from the date of receipt of the statement, the issuer deems the transactions reflected in the statement of account as correct. CCHAI recommends lodging a police complaint and reporting the matter to the issuer helpline to block the card.

Of course, there is also the fact that some of the banks are carrying as much as 7 to 15 per cent bad debts on their books due to delinquent behaviour. As the two sides lock horns and charges fly thick and fast, card users are beginning to weigh the pros and cons. The parley over plastic raises hopes as the new sign of the times.



See how low your rate can go. Shop continually for a lower card rate. If you find one, tell your card company you'll switch unless it can do better. And don't assume that a fixed-rate card is fixed forever.

Don't let the grace period fool you. The gap between billing and due dates is shrinking. You may miss an offbeat deadline, so have the due date changed to one that fits your bill-paying routine.

Don't opt for "revolving credit". If you're given the choice of paying your dues at one go or a minimum amount of 5% of the outstanding on the due date, never opt for the latter. It can become a debt trap.

Don't get duped by the sweet talk. Don't believe those direct selling agents. Ask for written documents from the bank for all the freebies. Don't go by verbal assurances alone.

Cut your coat according to cloth. If you can't control your spending, try to get hold of a card that gives you the flexibility to alter your credit limit.

Don't be late with a bill. If you're late paying another bill-a car payment or house loan-your credit card issuer might up your interest rate. And they don't even have to inform you.

Be ready for card frauds. Wipe out the secret pin from your card or change pin number every week. Electronic frauds are on the rise in the absence of biometric cross-verifications and digital signatures.

Claim insurance. Insurance for health and accident is covered by credit card issuers without the knowledge of cardholders. Read the fine print of the terms and conditions if you want to be one up.

Assert your rights. Call up the police if recovery agents trouble you. Cardholders can get help from the CCHAI helplines (080-22129894 and 040-27632525) between 8 a.m. and 8 p.m.

Read reward offers. Make sure they don't vanish if you don't claim them in a hurry. Remember, you'll be charged a 'reward fee' on those. Do you really need such 'rewards'?


The number game

India is one of the fastest-growing markets for credit cards, growing at 35 per cent per year

Over 16 million credit cards are in circulation, in the hands of five million people across India

There are over 1,80,000 point-of-sale terminals, slated to hit 2,50,000 in the next 12 months

Nearly Rs 2,20,000 crore was withdrawn by credit card users last year through ATMs

73 per cent of Indians spend less than $35 per month (about Rs 1,600) using their cards

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