What would you do as a Credit Card Company?

There seems to be a consensus that certain practices of some credit card collection agencies go beyond what is fair and reasonable, something which is officially recognized when no less than the Bangko Sentral ng Pilipinas issued the rules prohibiting certain unfair collection practices. For a change of perspective, put yourself into the shoes of credit card companies and ask yourself what would you do under the following circumstances:

1. You are in the credit card business and the business basically involves giving a fixed credit line to persons. As long as the cardholder stays within the credit limit, he could borrow the money from you. Convenient loan on demand.

2. Banks and other financial institutions require collateral for loans. This is a security in case a borrower doesn’t pay up on time. The process is long and the requirements abound. Interest rate and charges are generally higher for loans without collaterals because the risk significantly increases.

3. As a credit card company, you don’t charge interests or penalties as long as your cardholder pays the entire borrowed amount when it falls due. Your card holders know, or should know, this. Yet, so many decide to pay ONLY the minimum monthly amount.

4. Conversely, you charge interest when the borrower pays only the minimum monthly amount. You also charge penalties and surcharges in case of arrears. You hire collectors to collect the arrears. You know that your collectors are just doing their job. You also know that since they’re on the front line, much abuse and disdain, undeserved or otherwise, would be heaped on them.

5. Your cardholders also know that they must spend within their means, that they must use the credit card wisely, that they must pay what they owe.

6. You face not only cardholders who run from their debts, but also credit card frauds. You deal not only with one or a hundred card holders, talking to them whenever they fail to pay. You’re facing hundreds of thousands of cardholders.

7. You when someone borrows money, they know when it is due. In other words, there is some sort of promise to pay on a certain date. You also know that when it’s time to call on the promise to pay, sometimes cardholders can’t keep that promise for one reason or another. You also know that going through each reason would be a logistical impossibility.

Now, if a big chunk of these cardholders fail or refuse to pay, what would you do?  How would you collect their debts?

14 comments

  1. If I were in the shoes of the credit card companies, I should have learned my lesson from the big chunk of cardholders who fail to pay or who refuse to pay. Instead of focusing on collection efforts, there should be shift to adoption of a new set of criteria that will thoroughtly screen credit card applicants. Perhaps the cut-throat competition between credit card companies resulted to some leniency in approving credit card applicants.

    1. warrior, by way of taking the role of a devil’s advocate, it may be true that the intense competition may have resulted to leniency in approving credit card applications. On the other hand, many of those who defaulted have the capacity to pay — if they control their spending. We all have the tendency to overspent on a particular point. Paying in cash means we see our money running out. Not so with credit cards. It’s an accumulation of little charges. A nice bag. A nice shirt. A nice motorcycle. Determining who are most likely to overspend would probably require some psychological testing. More expensive and cumbersome process…unless you have some criteria in mind.

  2. If I were in the shoe of these Credit Card Companies, I will change the criteria and be more careful in approving credit card application. They are VERY GOOD when offering their credit card their agent will help you falcify documents and insist until you finally approved. Then after expect other credit card company to offer again.

    These is their BIG FAULT, they should not issue another card to a person who was approved by the other company. But sad to say, due to competition CREDIT CARD COMPANY ARE ON STREET AND GIVING THEIR CARD FOR FREE.

    Now who will be BLAME for the rising cases of DEFAULTER? Is it the person or the credit card company also?

    They should give chances to a person who fails to pay but agreeing to re-strusture payment cheme. They should lessen interest and charges. Some person force not to pay and became a defaulter due to interest and charges pile up. Maybe its about time for credit card company to look on these matter rather than giving to GREEDY COLLECTING AGENT the case.

    1. Journey Man, you’ve raised great points, some of which are similar to that of warrior (so my reply there would also apply here). Again, to take the other side for the sake of argument:

      “they should not issue another card to a person who was approved by the other company.” — Each one has an approval process. If a person was approved by another credit card company, then it’s sasfe to assume that he/she went through the screening process of that company. And passed. If the same person satisfies all the requirements of other card companies, then there’s no reason to deny a new card to them.

      “Now who will be BLAME for the rising cases of DEFAULTER? Is it the person or the credit card company also?” — Could we say that a credit card is just like, say, food. Some eat a lot, but don’t get fat because their metabolism is fast. Some spend a lot, but they have tons of money so they could pay. Some have no control over what they eat, and they grow obese and probably die, Some overspend, without checking if they have the capacity to pay for it at the end of the month. (I must say, though, that we all go through a point when we have no choice but to use a credit card for emergencies. In these times, you hardly think whether you’ll be able to pay at the end of the month).

      “They should give chances to a person who fails to pay but agreeing to re-strusture payment cheme.” — I could personally tell you that, yes, they do give chances to re-structure payments.

      1. “they should not issue another card to a person who was approved by the other company.” — Each one has an approval process. If a person was approved by another credit card company, then it’s sasfe to assume that he/she went through the screening process of that company. And passed. If the same person satisfies all the requirements of other card companies, then there’s no reason to deny a new card to them. — This merely proves that screening of CC companies are more focused on checking a prospective holders capacity to pay. CC companies check only requests the last 2 billing statements from a prospects existing CCs which in now way assures a person’s capacity whether or not he or she is a delinquent or not. If it’s possible, why not check a prospets savings/debit account instead (of course with due permission from the prospective creditcard holder).

        “They should give chances to a person who fails to pay but agreeing to re-strusture payment cheme.” — I could personally tell you that, yes, they do give chances to re-structure payments. — Question is, who qualifies for restructuring? The issue is not that the CC company issue restructuring or not. The issue is that the CC company sees restructuring as a last resort to absolved defaulters (after numerous calls, collection agencies and imaginary court hearings) whereas the CC company should be able to predict that at least the holder is starting to dafault just by looking at his payment method and terms. When this happens then restructuring should already be offered just to make the holder pay his/her existing debt.

  3. If I were in the shoes of these credit card companies, I would be more careful in approving credit care privileges. i would set up higher standards. This is business and we cannot afford to lose big amount of money because of the irresponsible people.

  4. i just wonder, despite the defaults, the credit card companies are still very aggressive , giving perks to cardholders. they must be earning much from those who are paying minimum amount due with the 3.5% interest rate , other finance charges and late fees not to mention the annual membership fee.

  5. CC companies are not in business to lose.
    Although its operation is too complex to
    a non-finance man, let me just point you
    some insider assessments:

    If Cardholders pays in full monthly, they
    earn “brokerage” commissions.no sweat.
    Unpaid debts over 180 days are classified
    as “loss” and 100% provision is required
    against it. The accounting process enable
    the company to “charge” these and subsequently
    lower their tax payable.
    The exorbitant charges enables them to recoup their
    exposure and operating loses.

    CC business is quite different from a regular bank credit operations.so, I wont change those CC policies.

  6. Credit Card companies are earning much! Despite thousands of defaulters nationwide they continue to be aggressive in approving credit card applicants. Credit card business is a high earning business! So who’s to blame???

  7. Credit card companies have the power to limit to put a cap to the credit line of customers. A prudent person should not give a big credit line to a person who he knew only from the submitted records which most often do not reflect the financial standing and spending habits of the client-customers.

    In the collection part, CCs should not hire those law firms which bully, threaten clients with imaginary criminal prosecution and issuance of warrants, and to the extent of humiliating clients before his/her employer, peers and neighbors. What a disgrace this law firms have become.

    CCs after referring the uncollected debts to law firms or lawyers should write them off instead of passing it again to another law firm or lawyer for collection. As stated by banker above, they charge this as a loss and lower their taxes. I suspect this CCs are repeatedly referring uncollected debts to different lawyers so they can repeatedly claim it as a loss once they get a certification from the lawyers that the debt is uncollected.

    In the end, everyone must act responsibly so the order of society be not imperiled.

  8. If i were in a credit card company, i will change the set of criteria and make things clear and understandable, and be more careful in other applicants. money can change anything, including people.

  9. If I were a credit card I would definitely do my best to help the defaulter and restructure. A lot of the blogs of the defaulters are that the willingness to pay is there. The credit card has earned from the account triple plus tax rebates.So restructuring the account with say a minimal interest rate waiver or at least reduction of past due interest rate and other fees will be a win win situation for both the defaulter and the defaulter.

    Most credit card holders are turned off by the collection agents who harass and their scare tactics.

    The credit card users must be protected too..

  10. if i were the cc companies, i would be more encouraging to the defaulters (90 days or up). Those defaulting, i wouldn’t ask for total amount (if they can’t pay the minimum, how can they pay the whole amount)? I will ask give them the option of a payment scheme and once fully paid, they can use the card again. Those that are in the collection agencies (those that are years in default), I would give them incentive by fixing the total amount due payable by installments and upon last installment paid, they can use the card again. In that way, cardholders will have an incentive to pay their arrears rather than feel hopeless (since i have nothing to lose, so why should i pay?). If I were the cc company i would be careful that the delinquent cardholder will not fall into a sense of “nothing-to-lose-if-i-don’t pay”. I will encourage him to try to pay, and once the account is fully settled, he can use the card again. More often than not the cardholder will be more careful

  11. I agree to some of the comments, some of the collection agencies are swapang in collecting and some are mababait they can even offer 12mos to pay with least pymt.ang hirap pang pakiusapan yong mga ibang collection agencies para silang mga loan sharks.Much that you want to settle your account but you cant bec. they collect 6x your credit limit not considering the pymts you made. I think it is better that the CC be the one to offer settlement instead of the collection agency.paano ka naman makaka ahon sa utang kung ganoon naman kalaki ang sisingilin nila.sana pwedeng bumalik nalang sa CC yong overdue acct at atleast naman siguro e legal rate ang charges at pwede pang installment hindi gaya ng mga ibang collection agencies.

Leave a Reply

Your email address will not be published. Required fields are marked *