OUR VALUED colleague on these pages, Sen. Sonny Angara, has drafted Senate Bill No. 1329 which is an “Act Providing for the Protection of Financial Consumers and for Other Purposes”. I hope this draft Act engenders vigorous debate in Senate and elsewhere.
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Our banking system works by having depositors who lend money to the banks. The banks then provide money transmission services via, for example, cheques, debit and credit cards together with ATM services.
Banks also lend money at varying rates to borrowers.
My concern is that the margin between the interest rates that banks pay to their depositors and the rates charged to borrowers is far too high. As a result, banks make excessive (in my opinion) profits.
Banks operate a cosy oligopoly which enable them to all make high profits.
For example, last weekend, Security Bank announced that its 2019 profits were P10.1 billion. It is not a big bank compared to BDO, but with a manpower count of 6,625, this means its profits are P1.5 million per employee. Not bad.
Interest rates paid to Security Bank’s depositors are derisory and have fallen sharply recently. For example, in November 2019, depositors of a typical deposit account received 1.875 percent per annum. Three months later it had fallen to 0.75 percent. Uncomfortably close to zero.
I believe all lenders should be forced, by law, to quote a true annual percentage rate of charge. If a bank charges 2 percent per month, this corresponds to an annual rate of charge of 26.82 percent. Lawyers seem to think that 2 percent per month means 24 percent per annum but the difference between simple and compound interest is not dealt with in law courses.
Angara speaks of the Usury Law. As far as I can tell we no longer have one. Banks charge what they can get away with and, as I mentioned earlier, there is not much competition between banks on the interest rates charged.
Interbank systems do not work well. Debit cards presented to retailers regularly evoke the discourteous message “do not honor”, even though there are sufficient funds in the cardholder’s account to justify the purchase.
Another problem is that the funds may be debited from the cardholder but not credited to the retailer who sold the goods. This is serious and I hope Bangko Sentral ng Pilipinas (BSP) is able to improve matters.
Angara mentions the Insurance Commission (IC). My experience with IC is that it, too, is unsatisfactory. I described a failed transaction experienced by a family member with PhilamLife where money was paid but no policy was received.
IC on 5 Jan 2015 sent a letter to PhilamLife asking the insurance company to reply to me and IC “within 10 days”. No reply was received and when I contacted IC again, I received no acknowledgement.
Financial regulators either need more teeth or need to work more vigorously when dealing with financial service providers.
Angara mentions that consumer fraud abuse, and misconduct have increased. He is correct.
Some weeks ago, I wrote about a ‘fly now pay later’ scheme introduced by a financial services company (Cashalo) in conjunction with Cebu Pacific. I was not able to calculate the annual percentage rate of charge but it was horrendously high.
If the concept of specifying the true annual percentage rate of charge was applied, by law, then consumers would know what they were letting themselves in for.
We need more consumer protection in the financial sector./PN
