By LEE C. CHIPONGIAN
MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) continues to review existing regulations on the credit card operations of banks, quasi banks and their subsidiaries to further strengthen policies for the protection of the financial consumer.
"The BSP is deeply involved in various projects and activities to support the economic and social development objectives of the government through its advocacies, one of which is on the promotion of consumer protection," noted a memo prepared by the Supervision and Examination Sector.
The latest of the SES amendments to credit card regulations was the prohibition on the issuance of pre-approved credit cards.
The rationale why the BSP disapproved its issuance was that it was not consistent with the general guidelines on the grant of loans and other credit accommodations under the BSP's Manual of Regulations for Banks (MORB).
Based on the MORB, before granting loans and other credit accommodations, a bank must ascertain that the borrower is financially capable of fulfuling his/her commitments to the bank.
The requirements for the granting of loans include latest income tax return or financial statements submitted to the Bureau of Internal Revenue.
The SES however noted that since credit card issuing banks and firms determine the paying capacity of a credit card applicant, the regulations may have created the impression that it is alright to issue pre-approved credit cards as long as the credit card-issuing institution has in place the system to manage risk exposures.
"Because of confusing provisions of the regulations and the stiff competition in the credit card business, a number of credit card issuing institutions have resorted to issuing pre-approved and sometimes even pre-activated pre-approved credit cards at the risk both of sacrificing the quality of their loan portfolio and of exposing the financial consumers to financial fraud which may be brought about by the unauthorized use of pre-approved credit cards," said the memo.
Last November the BSP amended its existing credit card regulations and one of the key features was the prohibition of the issuing pre-approved credit cards.
Also amended was credit card collection practices which was one of the main complaints of the financial consumer.
An important feature of the revisions was that credit card issuers are now required to disclose not only the name of the collection agency, but cardholders will be given the name of the agent assigned to his/her account once the bank or the card-issuing firm has endorsed an account to a third-party collector.
Based on newly-issued Circular No. 702 Section 4, banks and quasi-banks and their subsidiaries/affiliate credit card companies would have to inform cardholders in writing of the endorsement of the collection of their account to a collection agency at least seven days prior to the actual endorsement.