Credit Cards Gone Wild!

It seems that credit card companies have been trying to enter the Indian market without success. Apparently the pure cash market has trouble adjusting to fees and interest sometimes as high as 50%. I guess the Indians see the road ahead and there is big backlash again cards and their issuers. Read this interesting article courtesy of the International Herald Tribune.

Credit cards get a hostile reception in India

By Heather Timmons Published: July 5, 2007

NEW DELHI: Arigit Sengupta, a hotel manager in Bangalore, swears he is never using a credit card again.
After spending 30,000 rupees, or $740, on his card and paying his minimum balance on time, he said he wound up owing his bank more than three times that amount. "The kind of interest they charge, not even a chartered accountant could understand," he said.

Local and foreign banks are aggressively peddling credit card accounts in India, with good reason. Indian back offices service the credit card accounts of the rest of the world, creating the industry's ideal customer base: a fast-growing middle class with disposable income. India, like other emerging markets, is also attractive because consumers in the West are already overloaded with debt.

But winning Indian consumers over to plastic has been more problematic than expected.After years of hard sales, there are fewer than four active credit cards for every hundred Indian adults, one of the lowest rates in the world. And at a time when foreign banks like Barclays continue to jump into the business, an organized backlash against credit cards is building.

They are drawing vocal and heated criticism from users, consumer advocates and the government, who allege unfair fees, nuisance charges and - oddly enough, for the service capital of the world - miserable customer service.

Newspapers regularly run stories telling consumers how to cancel their cards. Many card holders have unashamedly abandoned their accounts after being levied charges they consider unfair.

"These banks are cheating the public," claims C. V. Gidappa, who heads the Credit Card Holders Association of India, a nationwide consumer group. Gidappa's organization, which estimates that Indian consumers are paying 16.4 million rupees a day in unfair charges, is agitating for a "debt-free India" by 2020.

Rates and fees frustrate credit card users around the world, but Indian consumers have something special to complain about: interest rates average more than 30 percent, and can soar to more than 50 percent, while charges tacked on for late payments are sometimes a whopping 20 percent of the overall balance.

The Indian government's trade watchdog, the Monopolies and Restrictive Trade Practices Commission, has begun an inquiry into the card-selling practices of banks including Citigroup, HSBC and the local banks ICICI and HDFC. These banks are "indulging in unfair trade practices" that "have an inherent and inevitable effect of causing irreparable loss and injury to the general public," according to a preliminary report from the watchdog's investigative arm.

The commission has the power to fine companies and limit their business dealings. All the banks involved say they have followed all appropriate trade practices and are complying with the agency's information requests.

The Reserve Bank of India is also concerned. On May 7, the RBI sent a letter to all commercial banks warning about "usurious" interest rates on loans and asking them to make sure costs to borrowers were justifiable. The RBI's ombudsman office said it had received 3,700 complaints from consumers about credit card lenders from January 2006 through May of this year - nearly two complaints for every hundred cards outstanding.

Some frustrated users have simply stopped paying their bills. About 1 in 10 credit card accounts in India are "charged off," banks here estimate, or have fallen so far behind that they are never expected to be paid, compared with about 1 in 25 in the United States, according to Standard & Poor's data.

"My balance never came to an end," said one borrower, V. P. Ullas, a branch manager at a finance company who initially charged some 15,000 rupees in clothes and furniture purchases to his Citigroup credit card. He is refusing to give the bank any more money, he said, after watching his balance climb to 100,000 rupees with fees and charges, and having already paid many times the purchase price. Ullas said he usually paid his bill promptly, but his interest rate jumped to 55 percent from 24 percent a year.

"I have paid much more than what is due to them," he said. Citigroup said it could not comment on individual accounts, but said customers who paid their minimum balance on time would not have an escalating balance.

Ashesh Razdan and his wife Monika, Delhi residents who work in the IT and pharmaceutical industries, respectively, have been battling a charge of 17,000 rupees on their HSBC card since June of last year. They always paid off their bills and their card completely and on time, Razdan said, but after dozens of faxes and calls to the bank disputing the charge, they've let the HSBC account lapse.

"How many times am I supposed to call customer care?" Razdan asked.

Because India lacks a comprehensive central credit reporting agency like the United States has, the repercussions for borrowers who stop paying bills are unclear. Disputes between banks and borrowers are generally settled out of court.

Many card customers - like Sengupta, who is negotiating for a settlement with his bank, ICICI - pledge never to rely on plastic again. "I've learned a lesson," he said.

In addition to high fees, customers say that sales agents make false promises about no-fee cards, payments are not recorded, bills do not show up and problems are not resolved promptly or at all, leading to more fees. Some cardholders who fall behind say they are visited by thuggish collection agents.

Banks lure in customers and then "start squeezing your blood," alleges Gidippa.

CORE, an consumer group with the slogan "Wake up consumer," gets some 50 to 60 credit card complaints a day.

The industry has real problems, CORE executives say. "We see a disconnect somewhere" between what consumers expect and what they're getting from the card companies, said Smita Singh, manager of brand and media at CORE.

"Changes have to come from the banking industry," she said.

Credit card lenders say they need to charge high rates and fees in India because of the market's uncertainties. Besides the lack of a reliable credit bureau to track borrowers' payment histories, India has no unified identification standard like the U.S. social security number. People move and are untraceable, they say.

"Many of these issues arise because of lack of customer awareness," said Citigroup's head of cards in India, T. R Ramachandran. "They are first-time borrowers, they are unfamiliar with carry-forward balances." Customer education, industry-wide, "continues to be a challenge," he admits.

Citigroup, which has 3.3 million accounts in India, said it provided new customers with a "welcome pack" that puts important terms and conditions in plain language. It also provides 24-hour telephone customer service and sends text messages to cellphones days before bills are due. Terms are also spelled out on the back of every bill, the bank says.

Even bankers in India recommend using credit cards solely for short-term borrowing.

"You should not finance any long-term expenditure on your credit card," said Dheeraj Dikshit, head of the card division at HSBC, which is now the fourth-largest credit card company in India, with 2.5 million customers.

Dikshit said that the HSBC policies were transparent, with details available on the Web and at branches. The bank is committed to resolving complaints within seven days, he said.

About a quarter of Indian card accounts are opened through direct sales agents, who are not bank employees but often peddle card accounts in bank lobbies.

MRTPC, the government watchdog, has been investigating card companies' use of direct sales agents for more than a year, following newspaper reports that accused banks of dubious practices.

A Delhi office filled with faded files and bug-infested sofas serves as the headquarters for the inquiry, a stark contrast to the slick offices of most new banks in the country. The investigation team leader also strikes a figure far different from that of India's emerging breed of bankers.

Jai Kumar, director of legal for the monopoly commission's investigative arm, has bulky forearms, two gold rings, a large gold watch and a prominently missing front tooth.

Kumar threatens to summon errant sales agents to court.

"We will call these people to the witness box," he said.