MANILA - The pandemic has had a negative effect on the wallets of Filipino families. Many breadwinners lost their jobs, while others to make ends meet are now underemployed.
As for the rest who thankfully still have work, they live in fear they may end up joining the former or the latter. Waking up to news that Metro Manila, Bulacan, Laguna and Rizal will be under modified Enhanced Community Quarantine (MECQ) from August 4 to 18 can only escalate these unemployment fears.
For Lora, another fear that keeps her up at night is her mounting credit card debt. “I own 3 credit cards and I took advantage of the 90-day grace period offered by the banks under R.A. 11469 in March. At that time, I wanted to hang on to my cash just in case things get worse,” she recalls.
When the quarantine was introduced, Lora, who lives with her elderly parents and supports them as well as her married siblings, saw her income shrink and practically disappear over the next three months. That left her with no choice but to dip into her savings and use up what should have been her payment for her credit card balances.
“Then June came and all the credit card bills were due for payment. When I saw the interest charges, I saw myself sinking into credit card debt with no way to get out of it,” wails Lora.
Over the last 8 weeks, she has been on the phone with the credit card companies and collection agencies working out a way to pay her debts and still be able to keep using the credit cards. “Several of my friends are in the same boat. We all know the interest rates are killing us, but we have no choice. We need our credit cards at this time.”
Will you go to jail when you can’t pay your credit card debt?
The short answer to this question is No. The Bill of Rights (Art. III, Sec. 20 ) of the 1987 Charter expressly states that "No person shall be imprisoned for debt..." This is true for credit card debts as well as other personal debts.
According to Atty. Romel Regalado Bagares, “non-payment of debts are only civil in nature and cannot be a basis of a criminal case. But of course, there are also cases where credit cards are used fraudulently, which are then subject of a criminal prosecution with a jail term as penalty.” Atty. Bagares is currently general counsel for a microfinance non-profit and lecturer for International Law at Lyceum University.
To help Lora, her friends, and others in a similar situation, consider the following advice to ensure you can keep your credit history healthy, and more importantly (especially in the midst of COVID-19 scare) stay away from jail.
#1 Do not run away from your creditor.
Atty. Bagares pointed out that Section 14 of the Access Devices Act states that a cardholder who abandons or surreptitiously leaves his/her residence, place of business or employment as stated in his/her credit card application, without informing the bank or credit card company where he/she could be actually contacted, and if at the time of such abandonment or surreptitious leaving, the outstanding and unpaid balance is past due for at least 90 days and is more than P10,000, shall be prima facie presumed to have used his/her credit card with intent to defraud.
“So a credit card consumer should watch out for a Section 14 situation, and not do this. Because if he or she does, he or she may be prosecuted for credit card fraud, which carries a jail term,” explains Atty. Bagares.
#2 Be careful of estafa or use of stolen credit card.
Estafa, or obtaining money dishonestly or by trickery, can land one in jail as well as use of a stolen credit card. It’s possible you are not aware you are taking part in such a scam so be careful of offers from strangers that are too good to be true. For example, secretaries with access to their bosses’ credit cards are often targeted by fraudsters, and they ignorantly allow unauthorized charges to go through.
In such cases, Atty. Bagares said these become the subject of criminal prosecution, with a jail term as penalty.
#3 You can call for a time-out.
Drowning in debt and need a break? Atty. Bagares offered another option for the hounded credit card debtor. “There is also RA 10142 Financial Rehabilitation and Insolvency Act of 2009, which allows someone with the help of the court to suspend payments on his credit card debts where his or her assets exceed his liabilities he or she foresees the impossibility of paying his debts as they fall due.”
This is a little known law and may help but Atty. Bagares cautions: ‘this is really just to allow the debtor to obtain a temporary reprieve from paying his maturing debts, with a court-approved and supervised plan to pay his creditors.”
#4 If sued, what can you do?
All credit card companies want to be paid. So we can expect they will exhaust all efforts to get you to pay using their own collection officers and a third-party collection agency. But when a customer is unable to honor promises to pay and make a dent on a ballooning balance, some credit card companies have gone to court.
Because a lawsuit can be long and costly, Atty. Bagares said that both the credit card company and the consumer may cut this short by entering into an out-of-court settlement, where they try to agree on a lower amount to end the case.
However, if the debt owed is sizable and the debtor has certain assets, the credit card company could seize those assets as well in an attachment proceeding ancillary to the collection case filed against the cardholder.
#5 “I can’t pay my credit card, so how can I afford to be sued?”
How much do you owe? There is now a small claims procedure where lawyers are not allowed to represent the complainant (or the credit card company). The threshold amount for small claims is P400,000.00 for Metropolitan Trial Courts, and P300,000 for Municipal Trial Courts in Cities and Municipal Circuit Trial Courts.
There is an upside and downside to this. The upside for the defendant (or the credit cardholder) is he or she won’t have to pay for a lawyer's appearance fees. This can be quite expensive, and Atty. Bagares said that solo practice lawyers in Metro Manila who are usually hired for this purpose can charge at minimum an acceptance fee of P20,000 and for each pleading another P10,000 or P20,000.
The downside is that it also cuts the costs for credit card companies because they do not have to pay a lawyer to attend the court hearings. The small claims rules allow a representative with a special power of attorney to make the claims in court on their behalf under a simplified procedure.
#6 How will you plead your case?
Looking at court records, credit card companies appear to be notorious for imposing high interest rates on a defaulting consumer. Let’s cite the landmark case Macalinao v. BPI (G.R. No. 175490, 2009), where the Supreme Court said that the interest rate and penalty fee of 3 percent per month or 36 percent per annum that BPI had charged to the user was unconscionable, and should be reduced to only two percent per month or 24 percent per annum (or 12 percent interest rate, and 12 percent penalty rate per year).
Atty. Bagares offers another helpful insight: Section 4 of the Access Devices Act requires that any application to open a credit card account for any person under an open-end credit plan or a solicitation to open such an account, either by mail, telephone or other means, shall disclose the following information in writing or orally, as the case may be: the annual percentage rate (APR); the amount of any annual fees and other fees; a detailed explanation of method used in determining the balance upon which the finance charge is computed; and any fee imposed for an extension of credit in the form of cash.
He added that there are many cases of credit card companies losing because of their failure to properly notify a consumer of the unpaid credit card bills.
#7 Do you have any rights as a credit card debtor?
Of course! Just because you are in debt does not mean you are 100% in the wrong. For one, you have a right to complain against unfair debt collection practices. Atty. Bagares mentioned that collection agencies hired by credit card companies often use insults or profane language, violent threats or false representations and similar practices.
Section X320.15 of the Manual of Regulations for Banks of the Bangko Sentral ng Pilipinas provides that subsidiary/affiliate credit card companies, collection agencies, counsels, and other agents may resort to all reasonable and legally permissible means to collect amounts due them under the credit card agreement. However, in the exercise of their rights and performance of duties, they must observe good faith, reasonable conduct and refrain from engaging in unscrupulous or untoward acts.
What are not allowed: (1) use of threat of violence or other criminal means to harm the physical person, reputation, or property of any person; (2) use of obscenities, insults or profane language which amount to a criminal act under applicable laws; (3) disclosure of the names of credit cardholders who allegedly refuse to pay debts; (4) threat to take any action that cannot legally be taken; (5) communicating or threat to communicate to any person false credit information, including failure to communicate that a debt is being disputed; (6) false representation or deceptive means to collect any debt or to obtain information concerning a cardholder; or (7) contacting the cardholder at unreasonable/inconvenient times, i.e., before 6:00 a.m. or after 10:00 p.m., unless the credit cardholder has given permission to do so, or account is past due for more than 60 days.
Section X320.15 also requires that banks and their subsidiary/affiliate credit card companies shall inform their cardholder in writing of the endorsement of the collection of their account to a collection agency/agent, or the endorsement of their account from one collection agency/agent to another, at least seven days prior to the actual endorsement. The notification shall include the full name of the collection agency and its contact details.
Some collection agencies publish the names of non-paying credit card users, which is a violation of the Data Privacy Act. The consumer may sue the violator before the National Privacy Commission.
#8 Honor your debts as soon as you can.
No one wants to find themselves trapped in debt with no way out, and worse to be sued for it. And while there have been many cases where credit card companies lost, there are also a growing number of credit card customers losing cases in court.
The best recourse is to agree on a debt payment plan with your creditor, and honor it. Coronavirus appears to be here to stay for a long, long time, and your bank knows that too. Be honest and commit to what and when you can pay at this time, consolidate debts if you can, and get ready to tighten belts until all debts have been paid down. It won’t be easy, but it can be done, one payment at a time.
Disclaimer: The views in this blog are those of the blogger and do not necessarily reflect the views of ABS-CBN Corp.