BSP adopts same collection practices for all consumer loans
Source: BSP adopts same collection practices for all consumer loans | The Manila Bulletin Newspaper Online
Special Feature
By LEE C. CHIPONGIAN
April 25, 2011, 10:04pm
MANILA, Philippines – Unknown to a lot of people, the central bank now uses one regulation governing the credit operations of banks and other Bangko Sentral ng Pilipinas (BSP)-supervised financial institutions to better protect all financial consumers, not just credit card holders who, understandably, have front row seats in the complaints department.
“We’ve made it (policy on credit card collection) applicable to all types of loans because it works and the most effective we have,” says BSP Deputy Governor Nestor A. Espenilla Jr. This allowed the BSP to implement a single credit collection standards on all types of consumer and household loans.
A report prepared by the Supervision and Examination Sector (SES) that Espenilla heads, and the Financial Consumer Affairs Group (FCAG) said that while there are existing regulations that promote the protection of financial consumers, the central bank continues to receive complaints from the public.
Credit card complaints still dominate the list, followed by complaints on banks’ deposit operations particularly on ATM-related transactions.
Data from FCAG show that since it started operations in October 2006, the most frequently complained about aspects of credit card operations are: unfair collection practices, excessive charges, unauthorized/disputed charges, issuance of pre-approved credit cards and fraudulent use due to lost or stolen credit cards.
The total number of credit-card related complaints received by FCAG is now 1,575, just 0.02 percent of the total number of credit cards in use, which as of the end of 2010, is 6.7 million. It’s fairly small compared to the number of total credit cards but it is enough to highlight that credit card operators have been perceived by the public as abusive, for example in collection practices, in the charging of interests and fees and issuance of pre-approved cards. “The situation underscores the need to further enhance the existing regulations in order to effectively address the growing sentiment of the public against credit card-issuing institutions,” reports the SES and FCAG.
Still, despite its horrible reputation as a credit enabler, the banking industry’s credit card loans continue to expand last year, with new borrowers thinking banks are easing credit standards to encourage more loan applicants.
At the end of 2010 credit card receivables were up 4.2 percent year-on-year to P120.3 billion, exclusive of credit card subsidiaries. In all, total consumer loans residential property loans, automotive and credit card loans – grew 14.4 percent to P472.6 billion while ‘other’ consumer loans such as personal and household loans also increased by 14.4 percent to P46.4 billion in 2010.
One collection policy
Espenilla says it has been decided that the BSP will apply one regulation, including those on confidentiality of information and unfair collection practices for other types of loans, such as personal loans.
The existing regulations governing credit card operations of credit card-issuing institutions already include the following:
*Requirement that these institutions keep strictly confidential the data on the cardholder or consumer, except under certain circumstances, which include disclosure to collection agencies, counsels and other agents of the bank or card company to enforce its rights against the cardholder; and
*Provision allowing credit card-issuing institutions to resort to all reasonable and legally permissible means to collect amounts due them under the credit card agreement, but requires that in the exercise of their rights and performance of duties, they must observe good faith and reasonable conduct and refrain from engaging in unscrupulous or untoward acts.
These regulations are now applicable to other lending operations of banks and other BSP-supervised financial institutions.
Notify first, collect later
The BSP continues to review existing regulations on the credit operations of banks, quasi banks and their subsidiaries, to further strengthen policies for the protection of the financial consumer.
"The BSP is deeply involved in various projects and activities to support the economic and social development objectives of the government through its advocacies, one of which is on the promotion of consumer protection," says the SES.
The amended loan collection guidelines are considered more ‘humane’. For example, borrowers will now be given time and proper notices of when his/her accounts, which are defaulting, are turned over to third-party collectors.
Not only the name of the collection agency, but borrowers will be given the name of the agent assigned to his/her account once the bank or the card-issuing firm or the lending bank has endorsed an account to a third-party collector, according to BSP new rules and regulations on loan collection practices approved last December 15 under Circular No. 702, which includes new and stricter guidelines for collection practices.
Based on Section 4 of this circular, banks and quasi-banks and their subsidiaries/affiliate credit card companies would have to inform cardholders and borrowers in writing of the endorsement of the collection of their account to a collection agency at least seven days prior to the actual endorsement.
In the original draft circular, the days required was 15 days however the Monetary Board reduced the number of days to just seven days upon the recommendation of the Credit Card Association of the Philippines (CCAP) when consulted on the draft circular.
CCAP also asked the BSP that banks should be given sufficient time to change all communication materials – four months at least – from the date of issuance of the circular, which meant banks should start issuing new loan brochures and application forms printed in plain language and in bold black letters against a white background using the minimum ‘12’ Arial font and size by this month.
The association, however, said they ‘generally agree’ that the adjustments in fonts and size which will make for better disclosure of the summary of the applicable fees, penalties and interest rates that may be charged for the use of credit cards or loans will benefit the consumer.
In the memo explaining the new circular, SES Deputy Director Belinda G. Caraan says collection harassment continue to be a ‘major issue’ as far as credit card-related complaints are concerned, especially when cardholders have no idea that their accounts are already forwarded to collection agencies.
“(The) card-issuing institution oftentimes discloses only the name of the firm to which the account will be endorsed, leaving out the name of the agent assigned to the account. The cardholder then receives calls from agents who do not give their true identity, leaving the cardholder without sufficient information to enable them to go after abusive collection agents,” notes Caraan.
In including provisions in Section 4, Caraan says the BSP will further enhance consumer protection for the following reasons:
*The cardholder will have time to consider his/her options, including the possibility of expediting the settlement of the account prior to its endorsement to a collection agent so that he/she will save on costs including the commissions and fees that the collection agent may charge;
*The cardholder will be informed with whom arrangements for the payment of his/her account may be discussed. This eliminates the chances of confusing the cardholder as to the terms of the arrangement and will not put him/her at a disadvantaged of not knowing the true identity of the collection agent when he needs to be further clarified of these terms;
*It established accountability on the part of the collection agency and its agent/s and will encourage them to properly and responsibly handle the collection process knowing fully well that the cardholder is aware of the agency’s/agent’s true identity; and
*Alerts the cardholder on agents using aliases or pseudonyms and will eliminate the practice of unscrupulous agents who resort to collection practices considered under existing regulations as unfair, including unauthorized disclosure of the details of the credit card account to third parties.
Continued monitoring, but more vigilance required BSP has reminded the public again and again that there are rules and regulations that prohibit credit card issuers and their collection agents from engaging in the following instances of unfair collection practices:
*The use or threat of violence or other criminal means to harm the physical person, reputation, or property of any person;
*The use of obscenities, insults, or profane language which amount to a criminal act or offense under applicable laws;
*Disclosure of the names of credit cardholders who allegedly refuse to pay debts;
*Threats to take any action that cannot legally be taken;
*Communicating or threat to communicate to any person credit information which is known to be false, including failure to communicate that a debt is being disputed;
*Any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a cardholder;
*And making contact at unreasonable and/or inconvenient times or hours (before 6am or after 10pm for past-due accounts).
To further enhance the protection of financial consumers, the BSP has prohibited the issuance of pre-approved credit cards by banks and their subsidiary and/or affiliate credit card companies.
Bank Marketing Association of the Philippines President, Allan Tumbaga, says that in adapting one credit policy, especially on collection practices, it is important to really look at the essence of credit collection.
“It should be humane and not unreasonable. It is like making sure that the relationship between banks and customers have standards,” he says. “A personal loan is like a credit card but there’s a credit card rule already so that can apply. We always advise the BSP that what’s important is making sure that loan collection practices are not detrimental to the character of the person/borrower.”
Tumbaga, also Vice President for Marketing and Communications Group for East West Bank, insists banks are always willing to open talks with clients and borrowers, especially defaulting ones “We want to upgrade the banking code and we want transparency in communicating with the customers and given the transparency we must communicate clearly.”
He adds, “It’s really how we deal as banks and customers we don’t need legislations if we can communicate very clearly. (Credit and the giving of credit) is the lookout of the issuer or lending banks, and at the end of the day it’s their risk and there are no risk-less business.”
Consumer protection, and why pre-approved loans are disallowed
The prohibition on the issuance of pre-approved credit is just the latest of the SES amendments on credit card rules. The rationale why the BSP disapproved issuance of pre-approved credit was that it was not consistent with the general guidelines on the grant of loans and other credit accommodations under the BSP's Manual of Regulations for Banks (MORB).
Based on the MORB, before granting loans and other credit accommodations, a bank must ascertain that the borrower is financially capable of fulfuling his/her commitments to the bank. The requirements for the granting of loans include latest income tax return or financial statements submitted to the Bureau of Internal Revenue.
The SES however noted that since credit card issuing banks and firms determine the paying capacity of a credit card applicant, the regulations may have created the impression that it is alright to issue pre-approved credit cards as long as the credit card-issuing institution has in place the system to manage risk exposures.
Originally Posted by psyche54
maayo ra jud bro nga wala ka gapadala...
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