Banks overcharge by ignoring credit card guideline

This Guideline limits the liability of a cardholder to RM250 for unauthorised use of lost or stolen cards under certain conditions.

For many cardholders their liability for the unauthorised use of their lost or stolen credit cards should not be more than RM250.

Yet they end up paying much more than that because they are unaware of their rights under the Credit Card Guideline (the Guideline). The Guideline limits the amount of liability to RM250 when certain conditions are met.

Many banks have chosen to ignore the Guideline and instead pursue the cardholder for the money, even though not following the guideline may be an offence under the Banking and Financial Institution Act 1989.

Where unauthorised transactions are concerned, many banks have often gone against the Guideline on 2 aspects.

Firstly, these banks have been guilty of charging cardholders more than RM250 for fraudulent purchases even when they have fulfilled the conditions set out in Clause 13.2 of the Guideline.

Clause 13.2 says that “The cardholder’s maximum liability for unauthorised transactions as a consequence of a lost or stolen credit card shall be confined to a limit specified by the issuer of credit cards, which shall not exceed RM250.00 provided the cardholder has not acted fraudulently or has not failed to inform the issuer of credit cards as soon as reasonably practicable after having found that his credit card is lost or stolen.”

Yet there are many cases where the cardholder has not committed any fraud and had immediately contacted the bank upon discovery of the loss of the card, but was still held liable for all the unauthorised purchases made before the bank was informed. 

The bank will always direct the cardholder’s attention to the clause in the card agreement which states that all transactions carried out before the loss of the card is reported to the bank is to be borne by the cardholder.  No mention is made of Clause 13.2 of the Guideline by the bank.

In some cases, the bank may offer to settle the matter if the cardholder pays 60% to 70% of the disputed amount. 

The cardholder may take up the offer, thinking that it is the best deal he can get.  However, if he has to pay anything more than RM250 he has been cheated.

Secondly, banks are guilty of making cardholders pay for the unauthorised transactions without first proving that the card was indeed used by the cardholder.

Clause 13.3 says that “where the amount imposed on to the cardholder for unauthorized transaction due to lost or stolen credit cards is in excess of the maximum liability limit, the issuer of credit cards has to prove that the cardholder has acted fraudulently or failed to inform the issuer of credit cards as soon as reasonably practicable after having found that his credit card is lost or stolen.”

In other words banks can only charge the cardholder more than RM250 if it can prove that the cardholder acted fraudulently or did not report the loss of the card  as soon as practically possible upon discovery that it was missing.

In reality, the opposite happens.  It is the cardholder who has to prove to the bank that the transactions were not signed by him.

In some cases, the signatures are obviously different and yet the banks insist the cardholders must pay the full sum of the unauthorised purchases. Often cardholders face obstacles in getting transactions slips from the banks to verify  the signatures.

Banks have been able to get away with making cardholders pay for the unauthorised transactions simply because cardholders are not aware of their rights.

To prevent banks from taking advantage of cardholders, the following should be printed clearly and prominently in the card’s monthly billing statement:

• The cardholder’s maximum liability is limited to not more than RM250 if the cardholder has not acted fraudulently and the loss of the card is reported to the bank within a reasonable time upon the discovery of the loss or theft.

• The burden of proof that the cardholder has acted fraudulently or had not reported the loss of the card within a reasonable time upon discovery of its loss lies with the bank, not the cardholder.

Bank Negara should also act against banks which chose to ignore the Guideline as the failure to comply with the Guideline may be an offence punishable under section 104 of the BAFIA.

Under section 104, any person who contravenes any provision of the Act shall be guilty of an offence and if no penalty is expressly provided, the punishment is a fine not exceeding RM500,000. In the case of a continuing offence, there will also be a daily fine not exceeding RM1,000 for every day during which the offence continues.

Poor Security
Being billed for fraudulent transactions is the fear of every cardholder. However if banks improve their security system, cardholders will have less to worry about.

Every cardholder is told to immediately sign on the card upon receipt.  The reason being, that the signature on the transaction slip should match that of the card if it is being signed by the genuine cardholder.

However this precautionary measure only gives a false sense of security to cardholders. As many victims of fraudulent transactions have discovered,  the banks still want to hold the cardholders responsible for transactions even where the signatures on the transaction slips were clearly not theirs.

This practice by banks is not only unfair to the cardholder, it also encourages fraud to be perpetrated.

Unless banks stop payments to merchants where the signatures are doubtful,  they will continue to let suspicious transactions go through rather than alert the banks about the fraud.

It can then be said that the merchant and the banks are accomplices to the card fraud.

Another flaw is the failure of the banks security system to be alerted by transactions which are evidently beyond the normal spending pattern of the cardholder.

In the case of cardholder Mr Toh, he was asked by CIMB Bank Bhd to pay for 2 disputed transactions of RM5,300 and RM6,500 dated 6.6.06 and 19.6.06 respectively. (Mr Toh only discovered that his MasterCard was missing on 11.7.06.)

Mr Toh refused to pay the RM11,800 because he felt that the bank should have contacted him when the first transaction of RM5,300 was carried out.

The RM5,300 transaction was unusual because usually his card transactions do not exceed RM1,000. If the bank had taken the trouble to contact him after the RM5,300 transaction was carried out,  the second transaction would not have gone through.  

It is a fact that those using stolen credit cards will try to make as many expensive purchases as possible before the loss of the cards is reported.  The frenzy purchases of expensive goods worth thousands of ringgit within an hour or two for a cardholder who spends only RM1,000 or so in a month, should have sent a warning signal to the bank.

Sometimes the banks do get suspicious and call up the cardholder to check on whether he has made the transaction.  Even though the cardholder confirmed that he had not made the purchase, the bank will still bill him for it. 

On 27 September 2006, Mr Loo received a call from Citibank asking him whether he had bought a computer with his Visa card.  He denied doing so.  He was then informed that someone was using his card and was asked to make a police report.

However, Citibank still billed him for the RM2,255 computer bought even though it was the bank itself  that told Mr Loo that someone was using his card to buy it.

Banks and their merchants owe a duty to provide a reasonable standard of security measures for cardholders.  Cardholders should not be made liable for any fraudulent purchases which the banks or their merchants should have been alerted to, but were not.

Cardholders should also not be held responsible for transactions which the banks knew were fraudulent and not made with the cardholder’s consent.

5 Credit Card Bankrupts a Day!
Bank Negara has tried to reassure the public that the problem of credit card indebtedness is not as bad as it has been made up to be.

It has said that non-performing loans  for credit cards only constitute 3.3% of total credit card loans or about RM700 million, and that for the past 3 years 60% of total transaction using credit cards are paid in full every month. Of the remaining 40%, only 13% are overdue balances, while the rest are current balances (amounts that the cardholders are paying on monthly basis, like zero-interest instalment, flexi-pay and zero per cent balance transfer (NST, 27 July 2007).

Yet according to Bank Negara’s own figures, the number of people who became bankrupts because of credit card debts was 1,656 in 2006, up from 1,479 in 2005.

That means that about 5 cardholders are made bankrupts every day.  The total number of bankrupts in 2006 had dropped to 13,596 from 15,868 in 2005. 

As a result, the percentage of bankruptcies due to credit cards debts, were higher at 12.2 % in 2006 compared to 9.3 % in 2005. Thus the proportion of bankruptcies caused by credit card debts had increased in 2006.

Of concern is also the fact that young people are getting into debt because of credit cards.

According to the Malaysian Financial Planning Council, 40% of fresh graduates ran into financial difficulties due to credit card debt (Star 22.10.07).

The problem of credit card debt will get worse given the double-digit growth being experienced in the card industry.

This is to be expected because with the banks falling over themselves to get as many cardholders as possible, riskier customers will be signed up.