Strides and swipes: Expectations for credit card companies and acquirers
A market participant in a highly regulated industry should institute means and methods which produce benefits that outweigh the cost and challenges posed by emerging trends in business and consumer protectionism.
The Philippine Credit Card Industry Regulation Law (Republic Act 10870) unequivocally placed all card issuers and acquirers (referred to as “covered institutions” in this article) under the supervision of the Bangko Sentral ng Pilipinas (BSP). Last week, this column discussed the benefits of the law to every Juan and Maria. This week, I will focus on the perceived impact of RA 10870 to market participants or industry players.
The express grant of supervisory power to the BSP cures the long silence of the law as to who may discipline industry players who commit excesses against credit card holders. It resolves the issue of jurisdiction over a market participant which does not have a quasi-banking license or is not a subsidiary or affiliate of a banking group. With stronger oversight function including the power to determine reasonableness of fees and charges, the BSP may arrest situations which may lead to costly litigation sooner than later.
By way of example, in the case of Crisostomo Alcaraz v. CA and Equitable Credit Card Network, Inc. (2006), the credit card holder claimed that he is an “honorary member” or “pre-screened” client who did not sign any credit card application form or terms and conditions prior to the issuance of the credit card. Through the use of such pre-approved credit card, the cardholder incurred obligations, carrying total interest and penalty charges of 4% and 3% for peso and dollar transactions respectively, which the Supreme Court ( SC) found to be non- binding. The stipulation on interest and penalties printed at the back of each and every credit card issued by the credit card company was found insufficient to bind the cardholder to the company’s terms and conditions without a clear showing that the card holder was aware of and consented to said terms even if he did not apply for nor sign the credit card.
More recently in Macalinao v. Bank of the Philippine Islands (2009), the SC upheld the credit card holder’s right when the latter questioned the legality of the stipulated interest rate and penalty charges billed against her. Since both were pegged at 3% each, translating to 36% per annum for interest and another 36% for penalty, the High Court declared the charges iniquitous and unconscionable. It went on to reduce total annual charges to 24%.
As such, to effectively deliver services and at the same time safeguard its interest and remain compliant under the keen eye of the BSP, market participants must be proactive in managing their affairs. As a groundbreaking piece of legislation, RA 10870 requires a credit card issuer or acquirer to maintain an appropriate risk management system commensurate to the nature and complexity of its operations while supporting the growth momentum for consumer retail lending appetite.
Covered institutions, old and new, must be prepared to adhere to the highest service standards and embrace a culture of fair and responsible dealings in conducting their business. It simply means that a proportionate (or substantial) amount of investment in people, processes and technology should be made to address this challenge.
Prior to the passage of RA 10870 and the effectivity of BSP Regulations on Financial Consumer Protection (Circular 857 issued Nov. 21, 2014), credit card companies were given 60 to 90 days after receipt of notice to handle complaints. Now, the law specifically mandates that credit card companies should take action within 10 business days from receipt of such notice.
Inevitably, a robust management information system should be in place to effectively and efficiently meet the shorter period within which to take action and resolve customer complaints. This is in addition to establishing a dedicated Customer Assistance Unit within the organization which shall be responsible for providing prompt action for the expeditious resolution of complaints, inquiries and requests.
As a consequence, a competitive remuneration structure that encourages responsible business conduct, fair treatment and mitigation of conflicts of interest should be adopted. There must be a continuing education of personnel with adequate experience, knowledge and expertise about consumer protection laws, relevant issuances of the BSP and other competent authorities.
Additional safety nets are also expected from a covered institution’s self-assessment functions (i.e. internal audit, compliance and risk, as applicable) that review its practices and internal policies and procedures to avoid administrative sanctions and imposition of penalties arising from any violation of laws, rules and regulations.
Moreover, covered institutions must adopt appropriate measures to protect the confidentiality and security of personal data of customers due to the growing threat to technology-enabling systems, which industry players should necessarily have, given the volume of their transactions.
Bottom line, a market participant in a highly regulated industry should institute means and methods which produce benefits that outweigh the cost and challenges posed by emerging trends in business and consumer protectionism. To remain relevant, these business organizations must have access to economic best practices and systems while strictly adhering to regulation.
After all, covered institutions are in a business imbued with public interest. It is reserved only for those who are willing and able. Indeed, the higher the risk, the higher the return.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of PricewaterhouseCoopers Consulting Services Philippines Co. Ltd. The firm will not accept any liability arising from the article.