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Thai Law Insights

Problems for Uninformed Credit Card Holders

Kittirut Luecha

kittirutl@csbc-law.com

Credit cards are an essential way of doing business for both vendors and consumers, especially in an increasingly cashless society. Financial institutions issue credit cards to consumers, with credit limits based on the consumer’s income and credit history. Although credit cards are very useful, they also have their drawbacks. If a cardholder does not understand the conditions attached to the card, this could lead to financial problems. According to a survey commissioned by Bankrate and compiled by Princeton Survey Research Associates International, cardholders increasingly use credit cards because they do not perceive credit cards the same as cash (Skowronski, n.d., n.p.). In other words, some consumers spend more freely and take less care when making purchases with a credit card than they would if they had to dig real cash out of their pockets. For the careless spender, this can lead to financial ruin and bankruptcy, especially if they do not clearly understand interest charges and late fees.

Some credit card issuers may charge cardholders a late fee and interest totalling as much as 30% if a payment is missed. According to Skowronski, only some card issuers provide any relief from such charges and such relief is short-term and limited. The result is that credit card holders may pay far more for their purchases, which may be deemed to be a deceptive trade practice and contrary to consumer protection laws of many countries, including Thailand.

Credit cards, as we know them, were created in the U.S. and use of credit cards grew exponentially. Laws and contracts between issuers and users tended to favor issuers rather than consumers. However, by 1970, in response to consumer complaints, the U.S. Congress passed the Truth in Lending Act of 1968 and the Fair Credit Reporting Act of 1970. These consumer protection laws were followed by the Electronic Fund Transfer Act of 1978, the Omnibus Appropriations Act of 2009 and, the Credit Card Accountability Responsibility and Disclosure Act of 2009. If protections under these laws were not in place, the U.S. financial system would be under considerable strain, as almost 80% percent of American families regularly use credit cards. Many consumers simply cannot avoid carrying over an outstanding balance from month to month. Consequently, American consumers pay around $15 billion in late fees and interest every year. At the center of this issue lurked usurious interest rates and hidden charges.

In an effort to strengthen consumer protection and spare Americans from financial distress, the U.S. Congress passed a new law to essentially replace the Fair Credit Billing Act of 1974. On May 22, 2009, President Obama signed The Credit Card Accountability Responsibility and Disclosure Act of 2009, also known as the Credit Card Act of 2009’ (Detweiler, 2009, p. 1; Office of the Press Secretary, 2009, p.2).  According to the drafters of this legislation, this law builds the strong first step taken by the Federal Reserve toward improving disclosures and ending unfair credit card practices. Protection provided by the new Act is based on four principles: (1) There must be strong and reliable protection for consumers. (2) All statements from banks and credit card companies must use plain language so that consumers can clearly understand charges so that they can avoid mistakes. (3) Credit card users have the right to cancel credit cards at their discretion. (4) There must be a strong system of accountability (Prater, 2016, n.p.).

In furtherance of the above principles, the Credit Card Act of 2009 also provides a regulatory system which may be compared to the UK’s Data Protection Act of 1984 and 1998. In that Act, businesses are afforded data protection which is analogous to data protection already afforded to individuals (Schaeffer, 2001, p. 185). In short, the Credit Card Act of 2009 envisions an integrated data protection system that protects all consumers, merchants, banks, and credit card companies and such regulators will have to answer to Congress (Jambulapati & Stavins, 2013, p. 4).

The 2009 Act also acknowledges the problem of young people forced to rely on credit cards to pay for education, which may lead to financial ruin at an early age. The Act provides new and specific protection in this group. Banks and credit card companies are now subject to stricter regulation when marketing cards to students (Office of the Press Secretary, 2009, p. 6).

In conclusion, banks and credit card companies must clearly inform consumers and consumers owe a duty to themselves to stay informed. As the US learned, laws from the 1970s were no longer adequate to regulate the credit card industry in today’s world. In Thailand, our Parliament has yet to enact such comprehensive credit card legislation, although various drafts have been discussed for over 15 years. While some consumer protections exists for credit card users in Thailand, much more could be done.