Beware!
Credit card charges high

By Kenix Chow
     A recent survey conducted by the Consumer Council has found that the interest rates of credit cards are “excruciatingly high”, with some credit card firms charging as much as 50 percent interest.
     The Council thus warns shoppers to think twice before borrowing cash from — or buying consumer goods on — them.
    Consumers should think twice before using credit cards.
     Dr. Dhirendra Srivastava, associate professor of law at the City University of Hong Kong, has studied this issue. He said there is little protection for cardholders.
     Currently there are three areas of law concerning credit card business: the Money Lenders Ordinance, the Unconscionable Contract Ordinance and common law.
     Though the Money Lenders Ordinance incorporates controls on credit agreements, it does not cover licensed banks, restricted licensed banks and deposit-taking companies.
     Moreover, the maximum interest rate is set at 60 percent, which is much higher than in other countries. For example, the maximum is 18 percent in Malaysia and Singapore.
     The Unconscionable Contract Ordinance also allows the court to throw out or change any contract deemed “unconscionable”.
     But according to past court decisions, provisions for credit card lending are not services, but facilities. Thus banks and card issuers are exempted from the ordinance.
     Common law has loopholes, also.
     Though the court can intervene between two parties in case of breach of contract, card issuers can argue that the interest payment at the rate prescribed by the contract is not a breach of contract.
     Since protections to cardholders are not enough, Dr. Srivastava recommends a series of regulations and improvements.
     First, the government of the Hong Kong Special Administrative Region should take a role in setting the interest rates, he said.
     Dr. Srivastava recommended rates be fixed at 14 percent, 5 percent above that of mortgage loans.
     Second, he suggested banks make sure customers read the terms of credit card agreements and explain terms to customers individually.
     Additionally, the cardholder agreements should be written in plain English and Chinese, making them clear and simple for common people to read.
     In a brochure for a leading local bank, the Credit Card Cardholder Agreement appears on the back page.
     The Terms and Conditions are written in small type, and they are presented in a way that they are difficult to be understood at a glance.
     An extract from the Terms and Conditions of a local bank states that “the cardholder shall be liable for all amounts debited to the card account as a result of the unauthorised use of a card until notification of its loss or theft has been received by the Bank.”
     Dr. Srivastava said cardholder agreements should specify a maximum liability for cardholders.
     Dr. Srivastava recommended that the upper limit of liability be less than $1,000.
     Some university students echo Dr. Srivastava’s view.
     May Chan, a City University student, said, “I am not sure about the rate charged and the payment due date either.”
     Another City University student, a Year 1 student who did not want to reveal his name, said, “Since the interest rates for savings are very low, the credit card borrowing rates should remain at 11 to 12 percent.”
     He said that the staff of his bank did not mention or clarify the information concerned when he applied for a credit card.


 No free lunch       Scrapped legislation



January 1998

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