Consumers clamour for lower credit card charges

The STAR online

Sunday February 1, 2009



With lending rates reduced and lower cost of funds, consumers are now rallying for credit card interest rates to be slashed to help them get out of debt.

Credit card interest is now pegged at 18% a year (1.5% a month) making it an uphill task for those with large outstanding balances to be debt-free.

If one can only afford to pay the minimum 5% repayment each month, it could take forever to repay as balances snowball under the high interest rate.

There are 10.3 million credit cardholders in the country with total debt standing at RM22.8bil as of Dec 2008.

“The actual cost of funds have reduced greatly, to about 2% to 3%. If you consider that, banks are making enormous profits with the 18% credit card interest rate,” said a businessman who wished to remain anonymous.

Deputy Finance Minister Datuk Kong Cho Ha concurred, saying that banks should lower the credit card interest rates, adding that there was a sizeable number of credit card holders, who form a large clientele for banks.

Kong said although Bank Negara fixed the rate at 18%, banks could lower the credit card interest rate on their own.

Recently, Bank Negara announced a 75 basis point cut in the indicative overnight policy rate or OPR to 2.5%.

Following this, banks reduced their base lending rates (BLR), which eased the burden on those servicing housing and mortgage loans.

The country’s largest bank, Maybank, has reduced its BLR to 5.95%, from 6.5%, with RHB Bank, Hong Leong Bank, CIMB and Bumiputera Commerce Holding Bhd also among other banks fixing a similar BLR.

Many feel it is about time that credit card interest rate be adjusted, given the challenging economic scenario.

Consumers Association of Penang (CAP) president S.M. Mohamed Idris called for the 20-day interest free period for credit cardholders making purchases to be reinstated, regardless of whether they paid their outstanding balances in full.

“Those who cannot afford to make full payments can never get to enjoy the interest free period,” he said, adding that such cardholders could end up with spiralling balances.

Mohamed Idris said the previous system of offering the 20-day interest free period helped to ease the financial burden on credit card debtors.

Association of Banks executive director Chuah Mei Lin said the body would consider the suggestions.

“We have frequent dialogues with Bank Negara and this is something that we will bring up,” she told The Star.

She explained that the credit card interest rate was actually intended to discourage people from spending beyond their means.

“We want consumers to be prudent in their expenditure,” she said, reiterating that credit card use was meant to be a short-term deferment payment for goods acquired.

Chuah said the credit card interest rate was fixed and not pegged to the BLR.

“Credit card interest rates are different from loan interest rates, because they are not tied to the BLR. It also carries a different kind of risk compared to loans in that there is no cash flow or collateral,” she said.


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