A shop attendant swipes a credit card. -- JP/P.J. Leo With four credit cards to her name and a combined debt limit of about six times her monthly salary, Irena was shocked upon finding out she had to pay interest equivalent to her entire month’s salary on her unpaid debt.
She didn’t have a choice but to pay, though she was not sure how the interest could be so high because it had only been a couple of months since she had paid off her cards. “I have complained to the bank, but still, they couldn’t do anything,” 24-year-old Irena said.
Irena’s case illustrates the problems circulating in the credit card industry, with the most recent case involving the death of a Citibank Indonesia customer during a meeting with debt collectors after he had failed to settle his debt.
Bank Indonesia (BI) plans to revise existing credit card rules as a solution to this, including requiring a minimum age and salary to own credit cards, capping the number of cards owned, limiting maximum interest rates and regulating the debt collection process, BI Governor Darmin Nasution said.
“We view it as necessary to improve the standards, so that on one side the customers are better protected and on the other side issuers could be more prudent to mitigate disadvantages,” he told reporters without providing details of the regulation.
According to Darmin, two cards are enough for one customer, while the existing interest rate of 3.5 to 3.75 percent per month is considered “too high”.
“There are people who have credit cards from many issuers, while their salaries are inadequate. That means they are given facilities to be trapped,” he said.
The rules would be issued within the month, with most of the points being effective as of the beginning of 2013, said Ronald Waas, the central bank’s director for accounting and payment systems.
“Issuers will also be required to be transparent on how they charge interest rates, when the interests are being imposed and what can be charged with interest. Those need to be explained to prospective customers,” he said.
BI wanted credit cards to be used as a means of payment instead of accumulating debt, Ronald added.
As of June this year, there were 14.24 million credit cards circulating in the country, compared with 13.57 million at the end of 2010, data from the Indonesian Credit Card Association (AKKI) showed.
More than 100,000 new cards are issued each month to meet customers’ demand, as credit card issuers often approach potential customers by phone, offering simple application schemes without properly checking their background.
This enables a person to have three or more credit cards with debt limits far above their monthly salary, risking bad loans.
With total credit card transactions of Rp 85.75 trillion (US$9.59 billion) from January to June of this year, the association’s chairman Steve Martha said that the non-performing loan ratio for credit card transactions ranged between 6 to 7 percent, versus below 3 percent for overall loans.
Key Points in Bank Indonesia’s Draft Regulation for Payment Systems with Cards
• Minimum age of 21 years or 18 years if married to own credit cards
• Minimum salary of Rp 3 million per month to own one card, Rp 10 million for two cards and for high income customers, card issuers will individually assess the eligibility for additional cards
• Credit ceiling is three times the customer’s salary
• Maximum interest rate of 3 percent per month
• Debt collection procedures and schedule to be regulated
• Six-digit personal identification number (PIN) is required, signatures no longer accepted
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