This is part 2 of MarketMan’s credit card series. He hopes they serve as an educational tool for Filipinos who have or are planning to get credit cards. He has given ProPinoy.net permission to reprint his posts. I decided to post them in full for your convenience.
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The vast majority of the readers of Marketmanila.com have at least one credit card in their wallets. The objectives of the following series of posts on credit cards in the Philippines are simple. To help readers, acquaintances and the public in general understand the local credit card industry a little better. To highlight the unique risks associated with Philippine-issued credit cards. To remind the public of particular safeguards they should consider to reduce the risk of holding their credit cards. To explain some of the salient features of credit cards that people may wish to learn more about. To encourage our legislators to review the laws governing local credit cards to ensure a truly reasonable playing field that protects consumer’s rights, as well as those of banks and credit card companies. To encourage the public to educate themselves and seek fair laws that govern the credit card industry in the country. And to narrate several recent, specific credit card and banking service shortfalls that I have experienced and which are a useful tool to illustrate many of the objectives stated above.
What is a Credit Limit?
I bet 80+% of you were certain of the answer to this question, and yet, defying all reasonable logic, many foreign and local banks engaged in the credit card business in the Philippines seem have a different definition for a “credit limit” when it comes to their respective credit cards.
A credit limit is the MAXIMUM amount of credit that a lender or financial institution (bank, credit card company, etc.) is willing to extend to a debtor. Or, for credit cards specifically, it is the MAXIMUM amount a debtor is allowed to borrow against a specific credit card.
How is a credit limit determined?
The amount of one’s credit limit is often driven by the size of one’s annual income, the assets you hold (homes, bank accounts, securities, etc.), your previous history with respect to paying obligations, etc. Often, a bank reviews a client’s details and creates a credit score which drives the credit limit offered to an individual. Banks like to keep increasing credit limits, OFTEN without a client’s approval or agreement, so be sure that your credit limits haven’t been creeping up over the years to a level you simply do not need or want.
Why is carrying a wallet filled with credit cards issued in the Philippines potentially more dangerous than carrying cash?
In the Philippines, if your credit card is lost or stolen, most banks try to hold you FULLY LIABLE for all charges made against the card until you call the credit card company to report that the card is lost. This is SIGNIFICANTLY different from standards elsewhere in the world. In the U.S., for example, the maximum liability for the cardholder in a similar situation would be as low as $50.
If you are shaking your head and want to know more, please read this post I wrote nearly 5 years ago. If I were you, I would open up my wallet right now and mentally add up the total credit limits of all Philippine issued credit cards that you maintain. If it would be difficult or even just slightly painful for you to have to pay up that entire amount in cash soon after your cards are lost/stolen and used to their maximum limits, then you might seriously consider lowering your credit limits as soon as possible. As a personal rule, I try to keep my local credit card limits at less than two months of my salary/income and this dramatically reduces my risk in case the cards are stolen or lost. I have other tips for reducing your risk of loss in the linked post above.
What Happens When a Bank Blatantly Disregards Credit Card Limits? Do you think that a large bank would give Mr. & Mrs. Marketman PHP42,000+cash/credit if the bank didn’t do anything WRONG? An Interesting Case Study…
I had two nearly identical situations where credit cards of my supplementary card holders (staff members) were allowed to breach their credit limits (which I had set strictly in a written letter to the bank) by as much as 100% of the credit limits! Read about the first instance, here. I wrote a follow-up “concluding” post, here. But just three months later, lightning struck twice and I was faced with the same situation again, here. What’s the bottom line? That particular bank allowed a serious breach in credit limits, up to double the original credit limit, and when I pointed out that it had happened on several occasions, they finally admitted they had indeed allowed major breaches and could not explain why, and they credited our accounts with PHP42,000+ for “goodwill”… Sorry, but I can be cynical. And when a bank gives you PHP42,000 while claiming they did nothing wrong, you have to wonder why they were parting with their money… Credit limits should represent A LIMIT, and the use of computers these days makes it potentially VERY EASY to establish and maintain that LIMIT.
A quick check of various bank websites (banks operating in Philippine market) resulted in these definitions for credit limits…
1. “CREDIT LIMIT” – The maximum outstanding balance of charges which the CARDHOLDER and his/her supplementary CARDHOLDERS are allowed to maintain at any given time subject to security features and credit limit management features that the ISSUER may impose for the benefit of the CARDHOLDER” – HSBC Philippines (Fine print in Font Size 9 in original electronic document)
2. “Credit Limit. The Cardholder will be assigned a Combined Credit Limit, expressed in Philippine Pesos, which represents the maximum allowable outstanding balance on all of the Cards held by the Cardholder combined, at any time.” – Citibank Philippines (Fine print in Size 5 in original electronic document)
3. “CREDIT LIMIT – Upon acceptance of Cardholder’s application, BPI, at its sole discretion, shall grant a credit limit to the Cardholder expressed in local currency (Philippine Pesos) which consists of either one or both of two forms, namely: (a) the Regular Credit Limit and (b) the Special Installment Plan (S.I.P.) Limit, the aggregate of which represents the maximum outstanding balance that a Cardholder and his/her supplementary cardholders are allowed to share at any given time subject to the security requirements and credit card management requisites which may reasonably be imposed by BPI from time to time ( the “Credit Limit” ). In no event shall the Cardholder and his/her supplementary exceed the Credit Limit.” – BPI (Fine print in Size 11 in original electronic document)
Surprisingly, I was unable to locate the typical terms and conditons that outlined “credit limits” for credit cards for either Metrobank or BDO on-line…
Of the banks above, it seems ONLY BPI sticks to their credit limits. Their definition jives with the commonly accepted definition of a credit limit. Once a charge exceeds the stated credit limit, the charge is denied. Many other banks “bend” their definitions of credit limits, and now allow “overlimits” which is a way to increase fees collections, but more on that issue in the next post.
CREDIT LIMITS – A SUMMARY
1. A credit limit should (but doesn’t always in the Philippines) represent the maximum amount of outstandings you can have on a card.
2. Banks/Credit Card Companies often increase credit limits without seeking your permission or approval, under the guise that they are doing you a favor and that all customers presumably want the biggest credit limits that they can qualify for.
3. A local credit card with a very high credit limit also carries a very high risk for the holder, particularly if the card is stolen or lost and used to charge items fraudulently. The cardholder is HELD LIABLE for all charges made before they notify their credit card company of the loss.
4. It is safer to carry the fewest amount of local credit cards as practically possible, and to bring down the credit limits on those cards to the level which represents your actual needs. You may want to consider reducing your credit limits on locally issued cards to reduce risk. One way you might do that is to figure out how much you can afford to pay up in the event that your cards are stolen and charged to the maximum. Or you can look back over the last year and see what the maximum credit you have used in the past is, and bring your credit limits down to that level.
5. Despite the relatively clear definitions of “credit limits”, you need to READ the fine print in credit card applications/websites as they are, frankly, often difficult to fully understand, and unclear for most customers. It amazes me that government has NOT seen fit to set clear guidelines for critical terminology like “credit limits” as it applies to credit card customers.
6. If you want to maintain a modest credit limit, put that peso figure in writing, send it to your credit card company and be vigilant when you peruse your credit card statements for any unauthorized increases in credit limits. This will give you some added proof and protection when a card company allows huge breaches in credit card credit limits.
Source: Market Manila
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Questions and comments should be addressed to MarketMan on his original post page.