Credit grabbing

THE BANKING sector is reportedly resisting the passage of any of the five bills in the House of Representatives, all seeking to impose ceilings on interest rates on credit cards.

Surely such a position was only to be expected. The banking sector had a terrible experience back in the 1970s over government controls on interest rates. Credit business simply shrank; certain banks collapsed.

Perhaps the proposed bills in the House today bring back memories of those bad economic years, a horrifying déjà vu.

What was a bit surprising in the reaction, officially coming from the Credit Card Association of the Philippines (CCAP) and the Bankers Association of the Philippines (BAP), was its severity.

Both organizations talked about the collapse of the credit card industry. Take note, it was not just about “losses” or “lower profits.” The sector talked about the “fall” of the credit card industry.

BAP president Aurelio R. Montinola III, who is also the president of one of the country’s biggest banks, Bank of the Philippine Islands, even used the term “close down” of operations.

Presumably, our lawmakers believe that the proposed cap on interest rates would help consumers, particularly those using credit cards.

Apparently, the congressmen want to limit the interest rates for delinquent cardholders. Really, if you pay your credit card bills on time, you do not pay for interest charges, right?

Credit card issuers have a so-called absolute maximum interest charge on delinquent account, which is 42 percent a year, compared with the maximum of 72 percent in the United States.

And our congressmen must fight for those delinquent borrowers? What about the disciplined cardholders, what happens to them, who even constitute more than 50 percent of all cardholders? It looks to me that our congressmen have a little misplaced concern.

According to Montinola, studies in other countries where similar limits were imposed, have already showed drastic decline in consumer lending.

In Japan, for instance, which was one of the first countries to impose ceilings on credit card rates, consumer lending dropped by more than 70 percent as a result of interest rate caps.

Because people could not borrow from the banking sector, they naturally resorted to the loan sharks, who should be more than willing to grab your business from the banks.

That, incidentally, was what actually happened in Japan, not to mention Germany and France, which also imposed ceilings. Studies showed more active credit black market in those countries as compared with, say, Great Britain, where there is no interest rate cap.

Here, in this country of more than seven million jobless, on top of the 12 million people called “underemployed,” meaning, they do not have regular jobs, we know the informal credit market simply as “five-six.”

If the proliferation of those motorcycle-riding foreign-looking guys is not enough, with the collapse of the credit card business, more people in the financial sector are going to lose their jobs.

CCAP president Simon Calasanz, who is also an executive of HSBC in Manila, has a straightforward explanation: Consumer lending is a business.

In other words, credit card companies invested heavily in the business. By its nature, credit card business is a retail type of lending. It is labor-intensive. Those companies thus hire hundreds of people. As we all know, there are always huge costs involved in manpower.

If the industry cannot recoup their investments, they naturally must close down. The impact can only be far-reaching. For one, the economy will slow down.

Statistics showed that credit card purchases account for more than 30 percent of retail sales. You take that away from the retail business, you kill a lot of the outlets, too.

Many in the middle-income bracket use credit card for medical treatment, too. If the banks tighten on consumer credit, many of us will not qualify for credit card issuance.

Where do we go for instant loan then? Right, the same “five-six.”

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WHEN did it become an ethical practice, not to mention “legal” practice, for companies to have similar business names?

It seems that a company of Sen. Manuel Villar, called Vista Land, is using a familiar name for its housing project in the fast-developing town of Sta. Rosa in Laguna—that is “Sta. Elena.”

Villar’s company calls its middle-income housing project the “Sta. Elena City.”

We all know that “Sta. Elena” is the name of the upscale golf community “Sta. Elena Village” in the same town, which has the world-class golf course “Sta. Elena Golf Club,” adjudged as one of the best golf courses in Asia and possibly the best in the Philippines.

Anyway, the developer of Sta. Elena, the “village,” is also known as Sta. Elena Properties, a company belonging to the Tantoco group, which also operates the chain of Rustan’s department stores and the coffee shops called Starbucks.

The same name issue already created confusion in business. Indeed, because the Villar project bears the name “Sta. Elena,” is it possible that Villar already took over Sta. Elena Properties of the Tantoco group? You know, that kind of confusion!

No, sir, far from it! From what I gathered, the Tantoco group is only allowing the use of its project name because of family relations with the owners of land in the Villar project.

You see, the land is owned by the Yulo-Quiros family. A member of the family is related by affinity to Rico Tantoco, the big man in the Tantoco group. They married the two Vargas sisters.

And so it is unlikely that, despite the confusion, the “Sta. Elena” name issue would escalate to a courtroom battle, even granting that Sta. Elena Properties, having been around for about 20 years, has the legal right over the name.

Just bear in mind that Sta. Elena, the “Village,” is not the same as the Villar company project.