About Credit Cards and Bankruptcy

Posted by drnaz on June 27, 2007 · 4 Comments 

Here’s another article on credit cards that i dug out of the Star archives.

There are some alarming statistics that you might want to read at the bottom of this article. Among others is the growth rate of the local credit card business was at a 24% in 2006.

Though it is good for business, the misuse of this financial tool will increase the number of bankruptcy cases among the 24 – 35 year old age group who are just starting their working life.

The Star Online : Saturday May 26, 2007

UOB’s credit card with cash rebates

By THEAN LEE CHENG

IN an age where instant gratification holds the key, Singapore-based United Overseas Bank expects the UOB One Card, which gives cash rebates to card holders, to revolutionise the credit card industry and set the trend for other banks to launch their own cash rebate credit cards.

Its general manager for credit card centre Yap Kok Tee claims this is the country’s first cash rebate card, as others may have some sort of cash programme, but not cash rebates.

Yap Kok Tee with the UOB One Card

He says market surveys conducted showed that consumers prefer cash rebates rather than painstakingly collect loyalty points.

“Consumers today want instant gratification. They are not going to wait around collecting points and redeem those points from a catalogue of products. This restricts them from buying what they want. Every household would already have such appliances.

“With the UOB One Card, a cardholder gets to use the rebate to offset the next bill. We have a spectrum of merchants whom consumers have dealings with on a daily basis,” says Yap.

UOB partners include Carrefour, BH Petrol, Golden Screen Cinemas, Kamdar, all the cell phone service providers and utilities. Cash rebates vary from 2% to 50% for Yoga Zone and Yoga Club daily passes. Most of the cash rebates average around 3%.

The bank expects overwhelming response from the card but decline to disclose numbers.

“We expect to get 100,000 cardholders by the end of this year. This will be a challenge because that is just six months away. This means an average of 15,000 new cardholders a month.”

The card, launched April 24, will not be competing with the bank’s other card.

Yap says they run on different strategies, with Vox Visa targeted at those between 25 and 35 who enjoy the clubbing scene and the Lady’s card.

“UOB One Card is for everyone,” says Yap.

“Although the market is not entirely free-for-life (there are cards where annual fees kick in after the third year), the free-for-life card has become very basic today. The card industry has become very competitive. As the year closes, competition can only heat up and we want to be the first to the market. At one time, it was loyalty points but now it is cash rebates that people want.”

Yap says the infrastructure for the card industry has been well set up in Malaysia, unlike in China. Things are expected to change with Beijing hosting the Olympics.

“That one single event will push China to put in place the necessary infrastructure,” he says.

The bank has half a million cardholders compared to the total market of nine million cards with RM4bil worth of retail sales and RM17bil in receivables transacted as at November 2006.

The credit card industry has been growing about 24% annually for the last several years and is expected to grow 16% this year. The drop is due mainly to market saturation as each bank usually ha several cards to push at different target segments.

As of the middle of last year, Maybank hada 25% share of the total card payment services market.

On the government’s call for banks to approve and issue cards more discriminately to reduce the amount of young bankrupts unable to pay their credit card bills, Yap says education is key to creating responsible card holders.

While banks are trying to increase their market share in the credit card industry with fast approvals and other strategies, the government has voiced concerns over the growing number of cardholders defaulting on their payments.

It was reported earlier this year that more Malaysians were being declared bankrupt. Consumers failing to repay personal or business loans and credit card abuse account for about 40% of the cases.

There were 2,300 cases in the first two months of this year. There was a total of 13,600 cases for the whole of last year, says Prime Minister’s Department deputy minister Datuk M. Kayveas.

Credit card defaulters who turn bankrupt are also getting younger.

After credit card and personal loan defaulters, housing and car loans defaulters made up 25% of bankruptcies followed by guarantors (21%) and the rest were defaulters of scholarships and stock exchange losses.

Credit Counselling and Debt Management Agency, a wholly-owned subsidiary of Bank Negara Malaysia says people generally pay their car and housing loans first and leave the payment of unsecured loans such as credit cards, later. That is why more people have problems with credit cards rather than car or housing loans.

Its chief executive officer Mohamed Akwal Sultan says since the one-year-old agency opened its doors, over 21,000 Malaysians have come by, seeking services such as credit counseling, advice on financial management, basic money management skills and debt management.

“We didn’t expect the outreach to be so great. We have also opened five branches in Johor Baru, Penang, Kuala Terengganu, Kuching and Kota Kinabalu within five months,” says Mohamed Akwal.

According to the National Insolvency Department, a cumulative total of 153,700 bankruptcy cases have been recorded with them. The total debt of these outstanding payments amounted to more than RM300bil, with credit card debts standing at RM20bil.

“Some people have at least three credit cards with an accumulated spending limit of more than 15 times their earning capacity,” says Prime Minister’s Department deputy minister Datuk M. Kayveas.

The minimum debt to initiate a bankruptcy is RM30,000, following a revision to the Bankruptcy Act 1967 in October 2003.

Filed under Money & Finance