All of us have seen growth in our personal income over the last three
to five years. Resulting temptations to ramp up lifestyles many
succumb to the temptations of offers from credit cards.
Don't give away your card details
Their well-trained marketing personnel attack our un-suspecting
psyche, promising life-time free card and freebies. Temptation to grab
a card and spend proves irresistible. Spending beyond our means is no
problem since we can pay in instalments.
LIC to finalise credit card ally this year
============================
It is the beginning of your personal disaster, unless you are careful
to get out before it gets to your throat. The card companies love such
customers who pay in instalments for their profit flows from fleecing
the unwary customer. Mind you it is a great product if restricted to
judicious use staying within the confines of one's cash flow
capability.
However, delayed or instalment payment turns it into a weapon of mass
destruction.
'Hidden' charges
============
Have you ever bothered to find out how these cards charge you? If you
do, you would resort to alternate methods of funding rather than your
credit card.
Giving auto-debit for your cards may be risky
Hiding behind the respectability of a bank these credit cards charge
usurious rates of interest and most people pay up without realising
that the rate of interest is upwards of 30% per annum.
To illustrate: You ran a modest bill of, say Rs 4,858 in the month of
February. The due date for the payment of this bill is March 25.
Credit card business set for over 30% growth
Of the two cheques issued by you for Rs 2500 and Rs. 2358, only Rs.
2500 was credited to your card, although both were dropped together.
Meanwhile you used the card for the following transactions:
March 4, 2008 Rs. 2731.01
March 18, 2008 Rs. 1499.80.
Your March statement includes an interest of Rs. 239.61 which is a
whopping 59.18% annualised interest rate on your total February bill.
A 'costly' delay
===========
You now wonder how a decent bank can fleece thus. Smarter and still
red in the face you decide to investigate the mode of charges levied
by the card. You realise that your cheque was credited on the 26th
(part-payment), a one-day delay. For this you pay interest for a whole
month.
Banks hiking merchants' fees on card swipes
Nowhere in the credit world is this practice prevalent. If you delay
by one day, you pay interest for one day only. To punish you further,
the delayed payment means you also pay interest on all new purchases.
Some relief on the card
=================
What you thought was free credit is now costing you dear, unknown to
you till you get the next bill. Their rules are equally vague. Try
reading any of them. You also run interest burden till the balance is
cleared by you.
The second cheque lost for no fault of yours results in taking a heavy
toll on you interest burden. Some companies do waive the interest if
you protest, but most don't.
Other surprises include charging you an annual fee even if you card
was issued as lifetime free card. If you protest it will be reversed,
otherwise it is free money for them and if you delay then can earn
interest on that as well.
They also have the audacity to tell you to first pay the bill and
await credit in the next month telling you that non-payment of a wrong
charge could still result in interest being charged for non-payment.
Free credit period
=============
It is in your interest to be a disciplined user of the card to exploit
its free credit for 30 to 50 days. It would be wise to use the card
only when you have the necessary liquidity in your bank account to pay
the bills on time. If you are not in a position to do so, then borrow
direct from banks where the maximum interest is generally not more
than 21%.
Good news for credit cardholders!
Similarly, don't use the card beyond the credit limit in the card, for
such use, even with their permission, would still entail a high
interest. Lastly, avoid the biggest mistake using the credit from one
card to pay the dues of another card. This is normally done by
withdrawing cash in the ATM to pay another card.
Afraid of fraud? Go for chip-based card
Every cash withdrawal is subject to an interest charge at 30% to 50%,
depending on the credit card company.
If at all you get into a trap, then seek counselling immediately,
including legal remedy to protect yourself from bankruptcy.
Remedial measures
==============
If you are victim of credit card over-charges what are your chances of
seeking justice. You could try the following:
1. Write a protest letter to the credit card company. Recently, I did
that with one multinational bank protesting against the charge,
refusing to pay and also indicating that I want the card cancelled
with immediate effect. I got a reply deactivating the card and
withdrawing the charge as well.
Ofcourse you lose the card but that is better than getting into a trap
of being fraudulently charged on the card.
'Rising credit card defaults worrisome'
2. File a case against the credit card company, saying that the
charges are usurious and the policy of charging interest is not fully
explained in the rules. Reproduce the rules from the rule-book and
annex it as part of the petition.
You stand a good chance of winning your case. Some recent decision of
the consumer court has gone in favour of the cardholder. Even if there
is a charge for bounding a cheque, which is disproportionate to the
cost incurred by the bank, you could challenge it.
Control rooms in pipeline to settle credit card disputes
3. Form a credit card users association and then use the strength of
numbers to seek representation before the RBI and the Ministry of
Finance to force the card companies to change the way they charge
interest.
4. Collect all members of the organisation as above and use the
protest that Gandhiji followed - light a bonfire and one by one all
card members can drop their card in the bonfire.
5. The association can also file a public interest litigation in a
court of law to protest the nefarious ways on charges levied by them
and implead RBI and Ministry of Finance as parties in the suit and
seek a direction that RBI and Ministry of Finance must act against the
credit card companies.
6. Last, but not the least, ensure that you don't spend on your credit
card unless you have the money to pay against the bill. Under no
circumstance fall into the trap of paying minimum balance.
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