Philippine Credit Card Industry Regulation Law (R.A. 10870)

The Philippine Credit Card Industry Regulation Law (R.A. 10870) was recently passed as a response to the increasing number of Filipinos using credit cards and also the accompanying increase in number of complaints against credit card issuers and collection agencies.

Herein I have identified the good and the bad sides of this new law:

THE GOOD

1. Avoiding the Pit Falls of Pre-Approved Credit Cards

You may have experienced receiving in your mail box a letter from a credit card company with an enclosed credit card which you could readily use after activation. More likely than not, you did not apply for that credit card.

What’s the problem? The problem with this is that credit card issuers only have a rough idea of your credit standing and financial capacity. They most likely just obtained your name from some marketers selling a list of names of potential clients for credit card companies.

Most of the time the credit terms are also not the best, unlike if you personally select the credit card that best suits your needs. If you start using this card and start accumulating debts, then you may end up not being able to get out of your debt.

Not to mention, you will not only receive one, but you may also receive more credit cards from other companies. Highly likely that when you have maxed out your credit limit in one card, you will be tempted to use the other credit card/s and this will further increase your credit card debt burden.

Under the Philippine Credit Card Industry Regulation Law, credit card issuers are now required to conduct know-your-client (KYC) procedures and exercise proper diligence in ascertaining that applicants possess good credit standing and are financially capable of fulfilling credit commitments. (Sec. 7).

This will make sure that only those who have the good credit standing and financial capacity will be issued with a new credit card and thus avoid creating a debt problem for the client.

2. Protection Against Unauthorized Transactions

Credit card technology is prone to getting compromised. Unscrupulous individuals could copy your credit card details without you knowing and they could start shopping using your credit card details while you sit back and relax unaware that someone is already buying an expensive Officine Panerai watch worth Php250,000.

Different credit card issuers have different methods of preventing this from happening. Some would call the number of the actual card holder to confirm that the transaction is authorized, while some would send text message after the transaction. While in some credit card companies unauthorized transactions are covered by insurance and thus the card holder need not worry about that transaction. However, some partner merchants would not even bother ascertaining the identity of the person using the credit card and this usually result to fraudulent transactions.

With this law, it is now mandatory that in the service level agreement between the acquiring banks and partner merchants, a provision requiring merchants to perform due diligence to establish the identity of card holders. This may include requesting for an ID from the purchaser before the transaction could be charged on the credit card. (Sec. 8).

3. Protection Against Unauthorized Credit Limit Increase

Credit card issuers sometimes increase a credit card holder’s credit limit without the knowledge of the latter. It may sound harmless but in reality these could pose problems to the credit card holder. First, if the credit card is compromised and used to transact, then the criminal has more credit to play with. Second, the credit card holder may continue with his use of the card thinking that he has not yet maxed out his credit when in fact it is already beyond the credit, and such purchases may already be beyond his capacity to pay.

Under this law, the credit card issuer needs to notify such credit limit increase and the credit card holder may decline such offer. (Sec. 9).

4. More Transparent Finance Charges

The credit card issuer is now mandated to reveal to all credit cardholders and potential credit cardholders the following information:

• Finance charges for unpaid amounts;
• Interest rate on the outstanding balance;
• Default, late payment/penalty fees or similar delinquency related charges;

Note: Late payment fee shall be based on unpaid minimum amount due. Unless there is an acceleration clause and total outstanding balance is reported and classified as past due.

• Method of determining the balance;
• Method of determining amount of interest and/or delinquency charges;
• Other fees such as membership/renewal fees, processing fees, over-the-limit fees, collection fees, credit investigation fees and attorney’s fees;
• For transactions made in foreign currencies, for dual currency accounts, the manner of conversion from the transaction and payment currency to Php;
• To include the statement – “Important Reminder: Paying less than the total amount due will increase the amount of interest you pay and the time it takes to repay your balance” in the billing statement;
• Any other information that may be required by the BSP;

Note: these information should be included in the billing statement on a quarterly basis at the minimum in tabular format. (Sec. 11).

The credit card issuer is also required to include a detailed explanation and a clear illustration of the manner by which all charges and fees are computed. (Sec. 12). Any change in the manner of computation should be done 90-days prior to the actual change  and if the credit card issuer does not accept such change, he may terminate his account. (Sec. 13).

5. Confidentiality Requirement

Credit card issuers, their officers, employees and agents are required to keep the credit cardholder’s information strictly confidential, except:

• When disclosure is authorized
• When released to credit information bureaus, industry association or card association
• Upon court order or by a government agency authorized by law
• To third party service providers (e.g. collection agents) when necessary to collect from credit cardholder
• To third parties such as insurance companies to insure the card issuer from defaults and fraudulent transactions
• To third parties to investigate fraud or unauthorized  activities.

Note: The recipient of information is similarly bound by the confidentiality requirement of the Philippine Credit Card Industry Regulation Law.

6. Protection against Harassment

Credit card issuers would use different methods in order to collect from a delinquent card holder most of the time they would refer the collection to a collection agency. Once this happens, expect your life to be miserable as you will be receiving phone calls, threats, calls from collection agents pretending to be lawyers and expect foul words, raised voice, threats of violence and a host of other derogatory words to force you to pay.

With the enactment of the Philippine Credit Card Industry Regulation Law, a credit card issuer or collection agent shall not harass, abuse, oppress any person or engage in any unfair practices, as may be defined by BSP. (Sec. 19).

The credit card issuer is also required to inform the credit cardholder that his account is being endorsed to a collection agency. The notice shall also contain the name and contact details of the collection agency. (Sec. 21). There cannot be two or more collection agencies running after the delinquent cardholder at the same time (Sec. 21).

THE BAD

1. Over-the-Limit Transaction

The law does not require the credit card issuer to notify the credit cardholder that the transaction is over-the-limit. It merely states that the card issuer may process the said transaction provided that the fees and charges are disclosed to the credit cardholder. (Sec. 14).

2. Lost or Stolen Card

The Philippine Credit Card Industry Regulation Law now makes or considers “any transaction” made prior to reporting as that of the credit cardholder. This means that even if the credit card holder did not authorize the transaction, such transaction will still be for his/her account. The credit cardholder could not longer contest the transaction as by virtue of this new law, it will be automatically considered as for the account of the cardholder. (Sec. 15).

Overall, the Philippine Credit Card Industry Regulation Law (R.A. 10870) is a good good step forward in regulating this industry and protecting consumers. With some adjustments here and there, such as the two bad sides I mentioned, this law will be a very potent legislation upon which our cardholders could rely on for their protection.

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