Pay up, or else…

It’s not even an extortion call from a Mumbai don. The above threat was given by officials of a ‘collection agency’, hired by a multinational bank, to recover outstanding dues on a credit card.

Threatening phone calls, midnight knocks at your, verbal abuses are just a few of the common methods employed by such agencies.

These collection agencies, or ‘consultation firms’ as some call themselves, specialise in getting back money. They are graded according to the money involved.

So a lower-grade agency tackles a Rs 20,000-defaulter, while higher-end agency is asked to recover money from defaulters with outstanding amounts of Rs 1 lakh and above.

Our credit card industry is growing at a rapid 25 per cent every year. At present, there are over 80 lakh users in India. Bank officials say, of these, at least 6-10 per cent default on their payments.

Defaulters end up paying anywhere between 2.45 per cent to 2.95 per cent per month, as interest on their unpaid bills. Considering that’s up to 36 per cent per annum, the money involved is high. No wonder that besides their own recovery departments, many banks have several collection agencies on their payrolls.

Neel Chatterjee, senior V-P at Standard Chartered says they hire collection agents in the fourth stage of recovery, that is after defaulter fails to respond to calls and letters from the bank.

“I’ve installed caller-ID”

For months, Mumbai-based Dr Ajit Desai received threatening calls to pay up the Rs 52,000 he had ‘‘spent’’ on his StanChart credit card. Desai’s repeated attempts to explain his card had been stolen and misused, fell on deaf ears.

‘‘The man said he was a direct sales agent of StanChart, and showed me an ID to that effect. He offered to replace my existing card with a gold card,’’ says Desai.

While explaining, the man switched Desai’s card with a defunct card. Later Desai learnt the fraudster had overshot the credit amount and spent Rs 52,000. ‘‘I immediately told the bank to block my card,’’ says Desai.

The fraudster, who had duped others similarly, was nabbed last month. But till a month before that, Desai got dreaded ‘‘calls’’. The last call, threatening to take away all valuables was received on March 14.

Retorts StanChart’s Chatterjee, ‘‘The alleged sales agent was not working for Standard Chartered during the fraud. The bank is not responsible for losses incurred by the doctors from the time their cards were stolen to the time they informed the bank of the theft.’’

No long arm of the law

‘‘In the matter of recovery of loans, the lenders should not resort to undue harassment viz bothering borrowers at odd hours, use of muscle power for recovery of loans.’’— RBI Guideline on Fair Practices Code for Lenders, May 05, 2003

Though, RBI has a code for lenders, it does not specify a procedure for recovery of debt from card defaulters.

‘‘Aggrieved persons can approach the Banking Ombudsman,’’ says Alpana Killawala, RBI spokesperson. With no help at hand, a group of people recently got together to form an All India Credit Card Users Association. This organisation has two main objectives — to ensure that banks follow fair debt recovery practices, and the reduction of interest rates on credit card dues.

‘‘In the US there is a Fair Debt Collection Practices Act, which defines what measures a bank may use for recovery. In fact, they have a special tribunal for settling such disputes. India, however, does not have any such law, which allows banks to get away with everything. But lack of a law does not mean lawlessness,’’ says AICCUA secretary Vinod Kumar Chand.

The association has approached Maharashtra Deputy CM Chhagan Bhujbal with a proposal to formulate such rules.

Sky-high interest rates

Analysts say it’s a chicken and egg situation. Often defaulters can’t keep pace with the interest rates. And banks charge high interest rates because of the dramatic defaults.

Interest on credit cards is a mind-boggling 36 per cent per annum.

Compare this with countries like the US where interest rates are between 0.75 to 1 per cent per month, or up to 12 per cent per annum. Banks attribute this to the high cost of infrastructure and the huge number of defaulters.

Roopam Asthana, head of HSBC’s Credit Cards Division, says, ‘‘For any player to sustain their business in India, interest rates will continue to be high till the infrastructure and delinquency costs are high.’’

Adds ICICI Bank senior GM V. Vaidyanathan, ‘‘The interest on credit cards can’t be compared to the interest charged on personal loans, a car loan or house loan,’’. In case of credit cards, most customers use the credit facility only once a while and for short periods, while the facility is committed to them throughout.

The load of these ‘free-float’ users is not felt in case of personal loans, he says. He also cites the high rate of default, 6-10 per cent.

Is debit the future?

No wonder the relatively “safe” debit card is booming, the industry is growing in multiples of 100 per cent. A major reason for this shift is that many banks have stopped issuing ATM cards. New account holders are given only debit cards. Another reason for their popularity is that debit cards fit the risk-averse Indian psyche. They allow the user to spend only the funds available in his account thus not allowing them to exceed their cash limits.