CONSUMER FINANCING: CREDIT CARD IN FOCUS
TARIQ AHMED SAEEDI (firstname.lastname@example.org)
July 21 - 27, 2008
While consumers after the advent of relaxed rules in consumer financing has gotten unnecessary involved in credit net of banks, this does not give a free space to commercial banks to deal arbitrarily with the consumer loan holders. Howsoever apparently calm prevails in the thunderous barging in consumers' privacy by loan recovery staff following the hue and cry despising such practices as illegal and banks setting strict criteria for loans approval and thus squeezing credit base, eccentric consumer financing practices are still drifting stability in the market away.
On one side, credit exploiters have come in to action to add on non perfuming loans and on the other banks are treating all and a sundry, be genuine consumer or not, with a same stick. What happens in subsequent effect is that an unorganized outlook of financial sector would start surfacing, supporting the critics that consumer financing would fail in multifaceted problematic society of Pakistan; in contrast to financial result that shows a different picture according to which credit in consumer financing is growing at a stable density year on year. Till May this year, disbursement of banks' credit in only credit card category of consumer financing was over Rs. 44 billion, out of total Rs. 3 trillion consumer financing for personal, auto, consumer durable loans, etc.
As compared to other modes of bank credit, credit card is considered unsecured because of having no security from borrower. And, this is why credit card has been recording highest default and embezzlement rates since its arrival. Instead, at the beginning online fraud of credit card was very high due to weak financial structure and no legal parameters in the country; whereas at that time, credit card approval had to undergo stringent application assessment by the issuer. As not many banks, perhaps except one or two foreign banks, were permitted to issue credit card, the market was niche.
The expansion of market occurred once after deregulation regime introduced in financial sector. Thereon, numerous banks set on enlisting credit card on top of financial solutions. Barring Islamic banks, now almost every commercial banks in Pakistan offer credit card.
Credit card in all over the world is recognized for its giving immediate monetary solution to its holder. In developed countries, people like to have associations with banks to meet their pecuniary needs through consumer loans because they are sure of prowess of financial laws. In Pakistan, the situation is quite reversed firstly since per capita income of the country fellows suffices barely to fulfil basic needs, leaving no vacuum for saving to waste on principal plus high interest against loans. Secondly, illiteracy rate in the country is drastically low, and since bank-consumer relationship, based on complicated legal epithets, requires educated and literate consumers, parity in it is difficult to maintain.
Basically, two different kinds of people suffer into banking disputes associated with the consumer loans; people without awareness, and people with having intention to exploit consumer loans. Recently, credit card conflicts appeared in public, sometimes representing kindred sprits of later set of people those who even without befitting source of monthly incomes indulged in out of pockets credits. Possessing two credit cards at a time can never match person of low income bracket. This is what normally in practice in the country where people get hold of plastic money to make expenditures in excess of their income ability. Resultantly, they fall into debt insolvency. Their ulterior motive behind holding credit cards disintegrates the legal rights of genuine insolvents of availing write-offs.
Banks can not be absolved from the responsibility of aggravating consumer loans defaults and frauds since to increase numbers they cajole consumers into credit net indiscriminately. Even to those for whom credit card is luxurious facility and beyond their ability to hold. It seems that banks are complacent in scratching back loans from borrower. And why not, they have trained professional taskforce to tackle with late or no payments by threatening and defaming borrowers publicly.
Getting out of banks' clutches is also not an easy game. If one applies to surrender his credit card, he has to go to pillar to post for this. First of all, no clear and precise guidelines are provided by the banks for those who intend to surrender their credit cards. Second in spite of receiving all outstanding amounts, banks often play delaying tactics in issuing no objection certificate that confirms payment received, probably not to giving in charging opportunity.
As charges on credit card bill is in decimal, figure mentioned after decimal and which can not be scribed in cheque may stop cutting off relation completely with the bank until full payment is made. While bank delivers bill on time at holder's doorstep, they avoid keep in correspondence with him for this matter.
LOW PROFILED BANKING MOHTASIB
To reconcile conflict of interest between consumer and bank, government has long constituted conciliatory institution but sarcastically little awareness in public is raised about this. Even educated and literate people can not recourse to legal supports due to low profiled working of this and few similar platforms.
One such institution is Banking Mohtasib that was established under the provisions of Banking Companies Ordinance 1962 and started functioning in May, 2005. The purpose of this body was to resolve customer banker disputes. It has been granted wide powers under the provisions of law by GOP. Any person not satisfied with the resolution provided by his bank can lodge complaint with Banking Mohtasib, which provides free of cost service.
Besides, prudential regulation of State Bank bound all banks (foreign or local) to have separate consumer complaint centre and redress consumer grievances within 45 days of conversance.
After the deregulation of banking and financial system in Pakistan, number of banking consumers is rising day by day, and so do the counts in complaints. As consumer financing is expanding more rapidly than any other financial services, it has become more prone to fall to financial aberration owing to being passed through, perhaps, an evolutionary stage.
This is not denying the fact that regulatory frameworks to curb unscrupulous financial market practices are absolutely in place in the country, but their capacity to ensure safety parameters for halting market manipulation is questionable. Had the monitoring and regulatory frameworks been capable to keep an eye on aberration and enforce prudential regulations accordingly, until now banks' eccentric acts and exploitation in consumer loans would have been controlled.
Again, there arises need of consumer court, which is specialised in presenting resolution to consumer-related issues; instead it provides protective shield to consumer rights and pre-empts curb on law violation. In this relation, province of Punjab presents a workable model for establishing consumer courts in all provinces. Such consumer courts must be activated in the wake of growing consumerism in financial sector.