Credit cards are an important part of every person’s wallet, across the world. Whether it’s a man or a woman, credit cards are sought after by everyone. Credit cards allow a person who does not have money in his wallet or bank account to buy products and services he desires. Credit cards often facilitate the purchase of products that are not essential or can be avoided. It gives the credit card holder a false sense of security and empowerment.
Number of Credit Cardholders in India.
67.6 million credit cards have been issued in India till November 2021, as per information published by the banking system in India. 5 per cent of India’s population holds at least one credit card. The total value of transactions done using a credit card in the financial year 2019-20 was 7,31,000 crore rupees. The average value of a credit card transaction in India was 2702 rupees as of April 2020. Credit card sales of leading private sector banks are increasing at an alarming rate.
What are credit cards used for?
Credit cards are most often used to buy clothes and electronic equipment like mobile phones, television sets, laptops, tablets, audio systems etc. They are the most popular mode of payment for online as well as offline transactions. There is a tendency on the part of people owning a credit card to succumb to the urge of buying fancy products when such products can easily be avoided. Such people tend to lose control over their urges and fall into a debt trap. Some people use credit cards to pay for rent and even to withdraw cash for everyday use. Credit Cards make you get into the habit of spending even if you don’t have money in your bank account. It is a vice like smoking and drinking and is much more dangerous.
How do Private Sector Banks market their Credit Cards?
Banks do everything to promote their credit cards. They flash advertisements at ATMs when you visit to withdraw cash. They appoint salespeople at Shopping Malls, Super Markets, Metro stations, Petrol pumps and every other place where there is a high footfall. They offer cash backs and discounts on the purchase of products using credit cards. They offer EMI’s for purchases of Mobile Phones, Tablets and Laptops. They offer such cash backs, discounts and EMI’s on online shopping portals like Amazon, Flipkart etc. They will do anything and everything to get you into the habit of using credit cards. They will highlight all the benefits of using credit cards for all transactions including the payment of rent to landlords. They won’t leave a single stone unturned to get you into this vice. They have many accomplices in the business community who collaborate with banks to promote credit cards. Even the government promotes Kisan credit cards to farmers. So we have to be very cautious and not fall victim to their trap. All the sweetness they show while promoting the credit card disappears at the first sign of not being able to make the monthly repayment.
What goes wrong with credit cards?
Credit cardholders are usually aware of the possibility of falling into a debt trap but they convince themselves by saying that they will use credit cards prudently. But prudence is lost when greed and urge take over and such people often find themselves paying more EMI’s on their cards than they can afford to.
Why do banks promote credit cards so aggressively?
Banks, especially from the private sector, promote credit cards very aggressively. They see a lot of potential for profit otherwise they would not promote it the way they do. The normal interest rate for most credit cards is 42 per cent per annum which is extremely high. Another catch with the credit card payment system is that even if you repay a part of the outstanding amount the bank is eligible to collect interest on the entire outstanding amount. If the outstanding amount exceeds your credit limit they will charge a penalty for exceeding the credit card limit.
What can credit card users do once they become prey to banks?
Credit card users can not reason with the bank for any of the charges imposed on their account because banks make you sign the terms and conditions before issuing the card to you. You cannot highlight this to any media because they are paid money by banks to keep their mouth shut, although this cannot be proved in a court of law. You cannot escalate this to any politician because politicians have more pressing problems to address or they just prefer to stay mum. You cannot raise the matter in a court of law because Indian laws are designed to protect the rights of the lenders and ignore the plight of the weaker sections of society. Also, banks can flex their financial muscles and hire the best lawyers in the country to present themselves in a court of law.
Number of credit card defaulters in India.
More than two per cent of credit holders had defaulted on repayment by more than three months, as of August 2020. If we apply this percentage to the total number of credit cards issued, it means that around 1.4 million credit card users have defaulted on repayment of the outstanding amount in India as of November 2021.
Consequences of default on Credit Card Payment.
Defaulting on your credit card payments or any form of loan repayment results in severe and lifelong harassment by banks and Non-Banking Financial Institutions. Banks have elaborate collection teams to call and visit customers. Collecting money by harassment of a defaulter is Standard operating procedure for banks and NBFCs. It may be a new exercise for the defaulter but for the bank it is routine work. Defaulters receive tens of calls every day asking for the amount to be repaid. If you tell them that you are not in a position to repay, for the time being, they will ask you to make at least some small token payment so that the account does not go into default and the credit card does not deactivate. Every other phone call you receive from an unknown number will be a collection executive asking you to make at least a small payment. They will make your life miserable and you won’t dare to answer any calls from unknown numbers. Even if you change your number they will find your new number by any lawful or unlawful means and start calling you on your new number. They will also call your neighbours, friends and relatives and harass them. It is difficult to say how they research as to who your neighbours, friends and relatives are and how they find their phone numbers.
The harassment does not end with phone calls. Every day you will find a collection agent knocking at your door and asking to be repaid. If you have shared your professional or employment address, you will find one collection executive at your office reception every other day. They will turn your life into hell.
Last Words.
I feel that the promotion and marketing of credit cards must be banned by the government, just the way publicity of tobacco products and alcoholic beverages is banned in India. This will prevent a large number of innocent people from becoming a victim of the Banking industry’s strategy of misguiding and exploiting consumers.
Let me highlight the fact that credit card users may unknowingly fall into the debt trap but the banking industry maintains accurate information about how many credit cards they have issued, how much money they have made in the credit card and loans business and how much they have lost because of defaulting customers. It is only after taking stock of all the above statistics the banking industry promotes credit cards and loans very aggressively because they know based on empirical evidence that even if they lose a few crores on account of defaulting customers, they will make thousands of crores from the ones who don’t default. If you want deeper insights into how the banking industry is systematically exploiting consumers and what you can do to escape from their trap, read the book, ” The Total Money Makeover” by Dave Ramsey.
Mungekar Wealth 