Monday, July 13, 2009

Why am I 'forced' to apply for every credit card under the Sun?!!! Part 2

Part 1 is here.

I received a few comments that I should view those hefty 'discounts' on credit cards as 'discounts' and people without credit cards are paying a 'normal' price at restaurants and shops. This is hogwash. Businesses have costs to cover and when they give discounts to a group of people, the rest are penalised. Credit card companies such as Visa use monopolistic practices that forces businesses not to charge higher prices when the credit card is used although the card company charges the 3% for each transaction otherwise they will remove the credit card facilities. This forces businesses to raise their prices for customers using cash for purchases. The same practice is used by NETS. Businesses are unable to give discount to those using cash although the cost of transacting in cash is lower. But these tie-ups and business tactics a just the tip of the iceberg. Credit cards uses fees and penalties to exceed returns they get in excess of the 24% rate. Companies can go beyond this 24% to charge something like 28%[Link]....highly predatory.

We don't even have laws to protect consumers from security loopholes and breaches on these cards. For example, the use of credit cards don't require a pin which makes it less secure than, say, the NETS payment system. However, when these security loopholes are exploited, it is the customer that has to pay up under our laws. Take the example of this woman:


The case goes something like this : a woman's wallet was stolen from her hand bag but she didn't realise it. The thieves used the card to charge $17K for purchases and close circuit TV at various shops captured the thieves using the card. Woman discovered the cards missing and made reports to the credit card companies and police....but it was too late. Under our laws the woman is now liable for the $17K. Still want to apply for every credit card under the sun to get those discounts? Use your card online? This is just one example of regulation needed to fix security flaws to protect consumers having a pin number would prevent all these cases of theft. Credit card companies that make hundreds of millions every year in Singapore cannot afford to fix this? There are many things to fix with credit cards and our Consumer Association and authorities are just not proactive.

Many countries have stepped up efforts to reform this industry[Link][Link][Link]. USA being the latest. If you want to get a good understand of the credit card industry and how it can harm consumers and society in a big way here's a Frontline documentary [Link].

27 comments:

Anonymous said...

Credit cards should have at least a PIN. A four digit number will do.

If not, credit cards are indeed dangerous, for those absent minded and careless people.

On the other hand, some people develop OCD syndrome by constantly checking daily their card is still in wallet.

Really this credit card thing is bad due to above.

Anonymous said...

The banks here are really enjoying themselves. Credit card are charging extobitant late payment and interest and getting away with it. I overlooked a $92 balance and ended with a $50 late payment charge. Now the card is history and I have decided to cancel all my cards and use cash for everything. The only problem is with so many e services I still need a card, even for government services. How that for partnership

skeptic said...

Well at least we should be greatful that are no pay-day loans in singapore.

You think credit cards are bad.. wait until you see pay-day loans.

Their fees and interest are much higher.

Jon said...

Even before the recent reforms, consumers in U.S. are far better protected than those in Singapore.

Link: "Your maximum liability under federal law for unauthorized use of your credit card is $50. If you report the loss before your credit cards are used, the FCBA says the card issuer cannot hold you responsible for any unauthorized charges. If a thief uses your cards before you report them missing, the most you will owe for unauthorized charges is $50 per card. Also, if the loss involves your credit card number, but not the card itself, you have no liability for unauthorized use."

LuckySingaporean said...

Jon,

This just show how far we have to catch up in terms of putting in place good regulation. But the unauthorised used of cards is just one aspect. Marketing to students, monopolistic business tactics, predatory loans, etc there are many things to fix. Singapore authorities are among the highest paid in the world and our ministers are the highest paid but they don't seem to be proactive.

Anonymous said...

Lucky,

Maybe these are not part of or low priority KPIs for million dollar salaries.

Remember it is difficult to attract good capable men into politics, so top pay is needed. By the way capable in what sense? That is also not clearly defined. So you also cannot say whether it works or not unless definition is clear.

Anonymous said...

In China, all my credit cards require my pin and I get an sms notice whenever a purchase is being made. This is really not high tech so it bugs me a lot that singapore is rather backwards in many areas. It all boils down to whether our highly paid civil servants want to do anything about it.

Jimmy Jim said...

Ditto about the China experience. You will receive an SMS whenever your card is charged so that you can detect unauthorized use immediately. And this is in Shenzhen, not a first tier city like Shanghai or Beijing.

Jimmy Jim said...

Ironically, it is safer to use the credit card online. There are more layers of security like address verification and CSV(3 additional numbers behind your card).

In addition, it is possible to dispute unauthorized transactions.

Anonymous said...

So if someone get robbed and the crook immediately use your credit card then you get to pay for the whole shit ?

Uniquely singapore. I'm sure it only happen to Sinaporean not to AngMohs in Singapore.

Anonymous said...

I think I know why already. Suppose if the woman was not held liable for the $17 000, the bank has to pay for this $17 000 if the thieves are not being caught.

Even if the thieves are being caught, the goods being bought most probably cannot be cashed out from ebay at purchase price of $17 000.

Who owns the three banks in Singapore?

By virtue of this news, most foreign banks will be happy to set up shops here as they obviously got less liability.

If they got more liability like the case of US regulations, they may leave, causing sharp drop in GDP, this is not going to be good for people whose salary and bounces are based on GDP.

Think Lehman Brothers Minibonds last time.

Anonymous said...

We in Singapore are pro-business.

By pro-business, I mean we cut back on consumer protection.

I don't need to follow the lawsuit filed against DBS by the High Notes 5 investors to know the outcome. I think we all roughly do know what the outcome will be.

Has it been otherwise?

Anonymous said...

PAP is proactive for the consumer but in a twisted way lah ... like taking control of CASE, now headed by PAP MP Yeo Guat Kwang.

With that in control, PAP decides who wins. If Lee Kuan Yew wants the American banks to come here and rip Singaporeans off then that's it. CASE is just for show only. PAP MP Yeo just a underling listening to his master.

But what to do, credit card holder thinks it is all fine and beneficial to them whaaat. So PAP wins hands down.

There is not such thing as a people's boycott of a bad policy in Singapore. So I don't expect the trend to change.

Like Lucky said there is really no winner whether you're credit card user or not. Because the sums are already worked out for them by the big boys.

If you use credit card, there will be a fee and a high one if you overlook or fail to pay on time. If you don't then you also lose because the businesses forced by credit card companies to give discounts to holders would factor in the loss in their overall pricings.

No company is stupid to give away such big discounts like 20% just because of credit usage usage. Simply jacking up the prices and then giving the discounts will do the trick.

Anonymous said...

those hogwash comments are always made by the same PAP apologists.

Anyway, there's an economics term for this: price discrimination.

Obviously, the PAP apologists either do not know this, or are creating smoke screens on purpose.

Anonymous said...

Ok I have just watch the video Secret History of the Credit Card that Lucky referred to, thanks to someone who posted that link earlier.

Here are some interesting points made in the video:

Credit card companies :

- hate those who pay on time because these users get to pay low interest to the credit card companies.

- love those who do not pay on time, that's how they make money

- love those who are late on payment or send bad cheques because then the companies can charge high penalties which exceeds the value of interest rates even.

:: Credit card interest rate can be raised at will if the credit company finds out that you have been late on payment to any other creditor, even many years before. Sounds ridiculous but true!

:: Raised interest can apply to past loans that are still outstanding

:: Because of addiction to credit card, users who were interviewed say they love to spend, hooray. They love the new dress in the shop window, they like too feel and look hip with the latest gadget like Ipod, bravo.

:: As a result in America if you say you want to pay by cash, they think it is odd, "What cash?" So people think they must in-crowd. Go on and be a sucker.

:: The average American debt is USD8,000 on credit card. Still they are made to think they are being financially clever because the terms say they only need to pay 2% of what they owe monthly BUT they never tell you how many years you need to meet the full obligation of your debt.

:: Interest rates rates can be raised from 8% to 25% or even higher if you are late on payment because your credit rating has dropped. You can protest but who tell you to use plastic in the first place?

:: Singaporeans are not that loose when it comes to money. Their default rate on credit card is low. Such a debt-ridden society if it ever happen might not be as severe as the US.

However that is not the end of the story. The credit card companies in collusion with PAP has worked out another scheme to fix Singaporeans.

As Lucky has pointed out, they are forcing businesses to give high discounts to credit card users. The idea is obviously to popularize, to spread the use of credit card so wide that eventually the credit card companies will earn big.

CONCLUSION

No point talking about wanting to check PAP if Singaporeans still want to go along with its policies to fix up society.

PAP is now a government by name only; in reality it is mercenary organization now working hand in hand with the powerful capitalists like American banks and credit cards companies to spread their disease into Singapore.

You still think credit card is okay? Then don't waste your time criticising and wanting to fight PAP.

Anonymous said...

citibank card also comes with citiAlert. You receive an sms for every transaction.

Parka said...

I don't understand one thing. What incentives does the businesses and employees have when they remind customers they can enjoy discounts if they use their credit cards?

Economically speaking, the business would rather horde the cash for itself then give it to the credit card companies. Unless the credit card companies are paying more than the discounts those businesses give to customers.

A 10% discount would mean the credit card company has to pay 11% to the business?

The economics is strange here.

Anonymous said...

Parka you are flabbergasted obviously.

Like the use of NETS and PayPal online, businesses have to pay credit card companies commission for use of credit card.

Now why would a business want to encourage customers to use credit cards? Ah, this is called crowd pressure and competition. If say as a restaurant you are not promoting the use of credit cards and others are doing it, then you would lose customers who prefer to pay by plastic.

Come on, credit card companies don't pay the businesses; its the other way round.

Their power lies in being big and being able to blanket the market with their advertising spin and sale force. This not forgetting the local banks and MAS are also working hand in hand with them, as they have everything to gain and nothing to lose so long as everyone is thinking of profit only - never mind the rot in the US.

Onlooker said...

Usage of credit card :=
Using future money.
Wage slavery

Anonymous said...

The same principle also lies in other businesses such as telcos offering cheap mobile phones(some are free) when they tie you to a 2 year contract. If you default they will cut your line but you still need to pay the monthly bills even though you are unable to access any calls. On top of that you also pay interests on the outstanding amount.

Those who still have an outstanding amount after their contract expire cannot terminate until they pay the outstanding amount in full. So even though they wish to terminate they are unable to do so unless they somehow managed to have lay their hands on enough cash to pay in full. As such they become slaves to an ongoing contract they do not want and have to continue to service the monthly, but still unable to make use of mobile at all.

So what can they do about it?

DanielXX said...

This is rubbish. What the fark is Yeo Guat Kwang and his useless CASE doing here? This kind of things should never be borne by the consumer; the card issuer should have a contingency balance to cater to these things. Insisting that the customer make payment by insisting that it was on the fineprint reminds me of the Lehman mininotes episode all over again.

The local banks really have it good. When they go overseas, then people cheat them here and there and they can't do anything about it. No wonder people call Singaporeans stupid. It's the result of a mollycoddled environment.

Anonymous said...

PAP leaders making merry with more credit card companies in USA to enter the Singapore market now that the US credit card market is drying up mah.

Anonymous said...

A few months back I received an invitation from Citibank to attend one of those time-sharing sales presentation presented by Marriot holiday resorts. Upon attending such a presentation for 2~3 hours sales talk, one will be presented with a S$150 shopping voucher.

You will be amazed how persistent these sales people can be. And when you show little interest in any of their schemes, they will use pressure tactics like getting other members of their team to join in and add unnecessary pressure upon the potential customer to sign on the dotted line.

Just imagine by paying each potential customer S$150 just to attend such sales talk, how much do you think Citibank charges for 'selling' the names of their bank customers to such businesses.

No wonder getting a credit card is so easy with so many freebies thrown in to attract them. And if you read the fine lines in the application form for credit cards, each card holder actually signs away their right to the bank to make use of the cardholder's personal information in whatever the bank deems fit.

The best thing is that MAS & Case has no objections to such abuse by closing one eye to such matters.

Parka said...

It's strange that in Sim Lim Square, retailers will often request cash over credit cards.

That's even though most shops pass that extra 2% credit card charge over to customers.

Clearly, the incentives for them shouldn't be different from those running restaurants -- to horde cash for themselves instead of paying credit card companies fees.

So why the difference here? There's no economic sense.

Jimmy Jim said...

Parka,

Sim Lim shops are all selling the same items and are competing on price. It therefore makes business sense to offer the lowest price upfront to attract customers.

This is also why they pass the credit card charge to you, because it doesn't make a difference to them whether you pay by credit card or not. You went to them because they have what you want at the lowest price.

Restaurants and other shops are different. Which restaurant you choose to fill your stomach sometimes on depends on the best deal you can get. For example, I have a craving for either japanese or chinese food. Both are fine with me but the japanese restaurant is offering an attractive 20% off for credit card holders.

Unlike the Sim Lim shops where cost of product is fixed, the japanese restaurant can play around with the portion, cost of ingredients, seating, etc to maintain the profit margin. For the restaurant, getting the customer in first is more important.

Anonymous said...

Parka

There is a risk of a stolen credit card fraud when accepting it for payment. This is probably why shops prefer cash or NETS.

Even some online companies have been ripped off this way.

Anonymous said...

"It's strange that in Sim Lim Square, retailers will often request cash over credit cards."

Possibilities:

- They might not be able to compete on price if they pass the 2% charge to their customers.

- Cash is safer since credit card payments can be reversed which is not within their control

- Cash has no digital footprints.