New ruling gives credit card holders better protection

Riri, 25, was penalized Rp 50,000 (US$5.5) for a Rp 1 million credit card bill in arrears for only two days — meaning she was charged 2.5 percent of her debt for each day the bill was overdue.

“I got pretty emotional. I called the bank and they said the minimum penalty fee was Rp 50,000. It was confusing,” she said, depicting problems that many credit card holders encounter: inflated credit card bills due to calculations that customers find hard to comprehend.

But that will not happen again in the future, because banks will have the same standards in calculating chargeable interest rates when Bank Indonesia’s (BI) revision of the Regulation on Payment Systems with Cards takes effect
on Jan. 1, 2013.

“Penalties and compound interest are restricted to be used as components to calculate interest rates,” BI’s head of payment systems supervision team Puji Atmoko told a press briefing on Monday. “Interest can only be charged if card holders do not settle their debts.”

Credit cards would also be restricted from being used as a means to pay for other credit, like housing or automotive loans, because credit cards must only be used as payment tools, he added.

That was on Irena’s mind when the 24-year-old accountant applied for four credit cards to take advantage of the deals offered by the banks. The four cards brought her to a combined debt limit of about six times her monthly income.

Those like Irena may not continue enjoying the benefits for too long, because the central bank’s regulation also limits credit ceilings to thrice the customer’s monthly income for those with incomes of between Rp 3 million and Rp 10 million per month.

“Those earning more than Rp 10 million per month will be free of limitations and banks will separately analyze their risks. And those with less than Rp 3 million monthly income cannot own credit cards at all,” Puji of the BI said.

Credit card holders with monthly incomes of between Rp 3 million and Rp 10 million will also be barred from owning cards from more than two issuers.

“Credit card issuers could also look at surrogate income. There are also professionals who do not have salary statements, so they could prove their monthly income using other means, like tax payments,” Puji said.

There were 14.6 million credit cards circulating in the country as of the end of 2011, a 1 million increase from 2010. Credit card transactions totaled Rp 165.6 trillion throughout last year, meaning Rp 453.7 billion in transactions were made using credit cards each day.

“To be honest, there’s an element of education within this regulation,” Puji said, adding customers would have debts that they could pay back, instead of piling on debts that overpowered their financial capability.

The regulation is also expected to drive down the high rate of bad debt (non-performing loans or NPL) that credit cards carry, which was at 4.51 percent as of November, higher than 3 percent for overall loans, he added.

Banks not complying with the regulation would receive administrative sanctions ranging from warning letters to prohibition from several business activities, according to the regulation.

BI regulation for payment systems with cards (Effective Jan. 1, 2013)

Profile

• Age: minimum 21 years for main card and minimum 17 years (or married) for additional card

• Income: minimum Rp 3 million per month

Ceiling

• Credit limit: maximum of triple monthly income

• Number of cards owned: maximum two issuers

Interest, penalty, calculation

• Charges: cost, penalty and compound interest are not allowed to be used as components to calculate interest; the amount of days used to calculate interest is 365; interest charged must start from the posting date

• Rate: Bank Indonesia will announce maximum limit for interest rate at least 20 days before Jan. 1, 2013. Governor Darmin Nasution considers the 3.5 to 3.75 percent per month currently charged to be too high

Security: Chip and personal identification number (PIN)

Third Party (collection, marketing, etc.): Based on BI regulation (PBI) on outsourcing. Ethics code and rule of thumb are expected from industry players (banks, credit card issuers)

Purpose of use: Restricted from being used to pay off other loans; only to be used as a means of payment

Source: Bank Indonesia (BI