CREDIT CARD DEBTS BALLOON

JAMAICANS HAVE been turning to a wide range of credit and loan arrangements to meet their cost of liviug and lifestyle demands, and have chalked up credit card debts peãking at more than $5.6 billion for one month, Bank of Jamaica data reveal.
    This has raised cOncern among consumer watchdog groups who fear that the debt is not being managed sensibly or well and that more Jamaicans could soon run into problems.
    According to the Consumer Affairs Commission (CAC), the chief concern is the use of the credit card, which has now been added to older forms of indebtedness, including those associated with hire-purchase. For the first time ever in a month, accumulated commercial bank credit card receivables passed the $5.6 billion mark in November 2003. “With an emerging consumption pattern not unlike that of North America, soon Jamaican consumers may be in the same problem of unmanageable credit card debt," Raymond Pryce, director of research at CAC, told The Sunday Gleaner last week.
    Although the figures for December 2003 are not yet available, researchers at the CAC said this was likely to exceed the November 2003 figures because of the Christmas shopping period. "Our findings in December were that there was a very high volume of purchases and other transactions with credit cards. Purchases were primarily luxury items,” a CAC report said. Some concern was also expressed about the indiscriminate use of cards by teenagers, co-signees with their parents.
    During the Christmas period, the breakdown of items and/or services purchased ranked as: Fast food, personal items (clothing, perfumes and jewèllery), grocery and food items (meats and confectioneries), services (manicures, pedicures, facials, etc.), travel, entertainment and utilities.
    But some banks have been putting in their own strategies, which they say have been working, to discourage persons from amassing huge debts. "We had a bad debt portfolio which was terrible. I cannot think of figures nght now but in recent times since we have put in new policies and a new risk management structure we are no longer in that situation,” the credit manager at one local bank said.
    Measures include blocking accounts which are past the due date (30 days), as well as steep fees for late payment. National Commercial Bank (NCB) also, claimed significant reduction through serious monitor- ing measures. “In recent years the delinquency rate has been improving, once we started to get aggressive in our collection and monitoring,” said Retail Banking Manager, Courtney Campbell.
    Now he says there is more emphasis on the client’s credit history through stricter ‘up front’ assessment checks on ability to pay and closer monitoring of customers’ accounts.“We’re actually now pleased with the delinquency rate which is well below international standards,” Mr. Campbell said. Still, looking looking at the most recent trends, Mr. Pryce expressed concern over what he said was the cavalier use of credit by consumers, most of whom do not appear to understand the penalties and methods interest rate application for both their loans and credit cards which, in the last two years have become much easier to access.
    Statistics from the banking sector confirmed an increase in the customer base. RBTT Bank Jamaica Limited reported “significant growth” in its loan portfolio since 2002 follQwing decentralisation of its credit process. “In addition we have had several loan campaigns whereby customers have the benefit of not making any prinicpal payments for the first three months,” noted Amrit Sinanan, RBTT's managing director.

INCENTIVES
    Credit card rewards in the form of cash back and discounts have also been offered as incentives. Scotia Bank Jamaica also reported a spike in its credit card customer base since October last year. “We have had a very good response to the Scotiabank Magna MasterCard credit card product since the launch in October and we have seen a significant increase in the number of credit card applications. Since the launch of the Scotiabank Magna MasterCard, we have had over 50 per cent increase in new credit card accounts opened monthly,” said Audrey Tugwell-Henry, ScotiaBank’s general manager of electronic banking. Relaxed collateral requirements have in some cases seen individuals accessing loans up to 11 times their salaries, in addition to acquiring new credit cards. However, the easier access to loans and credit have not been accompanied by an equal push to inform and educate about usage and on-time payments, Mr. Pryce said.
    Data made available from the Bank of Jamaica reveal that in November 2000, commerial bank credit receivables, inclusive of local and foreign currency, stood at $2.7billion, a figure which remained almost the same for November 2001 ($2.9 billion). But sharp increases in usage by mid-2002 saw a climb to $3.7 billion by November 2002, with significant climb within a one-year period to $5.6 billion by November of 2003.
    In and of itself, credit card usage is not a problem, said Mr. Pryce. However, the Commission’s Knowledge Attitudes and Behaviour Pattern study (KABP), an on-going survey of consumption patterns, reveals that too many users are missing payment dates, thus incurring heavy interest charges and many are also misusing the catd.     “Consumers are opting to use the credit card as the preferred form of payment for goods and services, but they do not understand the peculiarities of proper usage,” said Mr.Pryce. He said that in discussions with RBTT, the National Commercial Bank and Scotia Bank, “we have learnt that many are missing their billing date and incurring penalties, something many are not aware of, it seems.
    “Most do not appear to know that interest is calculated monthly on the total amount owed and that even if you have made a part payment, this will not reduce interest owed. They are focused only on watching their credit limit. But, the problem of managing debt involves diligent payment by the due date.”

INDISCRIMINATE USE
    The research manager said that the CAC was also concerned about the indiscriminate use of credit cards. The majority of persons are using their credit cards for fast food, clothing, electronic appliances, furniture, utility bills, groceries and pharmaceuticals. The research manager conceded, however, that bad debt management was not a new feature of local consumer behaviour. “People have loans outstanding against their salary and several kinds of other loans all juggling at the same time. The working poor are sometimes left with zero dollars on their pay cheque with only the credit card to keep them through the coming month” he said. The researchers state that while the surge in usage is a sign of increasing consumer confidence, the organisation remains concerned about the overall rise in indebtedness, which include hire purchase and same-day loan arrangements.
    Repayment of student loans has also become a significant feature of indebtedness as there are more and more programmes targeting working Jamaicans, with loans available for such study from ciedit unions, other financial institutions and the Student Loan Bureau itself. The problem, notes Mr. Pryce. is that these working students are also attempting to pay rent and meet other monthly expenses at the same time that they are coping with loan repayments. Some amount of debt has also been contracted in the form of new mortgages. While this borrowing will in the long term enhance the individual’s asset base, currently a lot of new borrowers are juggling their mortgage with credit card payments, using the credit card to pay utility bills, buy food and clothing, it was noted.