Banking on debt
When you are old and have worked hard all your life, retirement should be a time to take a deep breath and relax with some financial security as a reward for your labours. Not so for some of Hong Kong's most vulnerable, caught in a debt trap of easy-to-attain, high-interest credit that effectively makes their final days a misery.
It may have been an operation, or a family emergency, or a relative needing rescuing that pushes a kind-hearted old person to draw on a credit card, perhaps two, for quick cash to solve the problem. But with no earning power, the trap is sprung and the victim is caught in an endless spiral of debt. For the banks, it seems, age and financial status make little difference to a credit card application: everyone is fair game.
Take the case of Mr Wong (not his real name), a loving father who used his credit cards to repay a $300,000 gambling debt for his only child. Over the past 15 years he has repaid more than $1 million.
But still, he was told recently by the credit card companies and banks that he had repaid only one third of his loans, with $220,000 remaining outstanding. The father, now 64, said the repayment seemed to be 'endless'.
'I do not know how much of the amount belongs to interest and how much is the principal,' Mr Wong said. 'All of my $400,000 pension will be gone in the next one or two months.'
In the past 15 years, Mr Wong has settled a minimum repayment of $12,000 every month for his seven credit cards, including two gold cards. He admitted he would occasionally use his credit cards to settle bills worth a few thousand dollars on some months. That, however, incurred new debts.
The retired security guard fell victim to the pitfall when he used the credit card cash advance service in 1989 to repay the $300,000 debt. 'It is very convenient to get the quick cash from the machines, which was important when we needed the urgent money to save our son, who was being hunted by loan sharks,' he said.
Before his retirement in 2000, Mr Wong worked for a local bank on a salary of about $20,000 a month. The amount was generous enough for him and his wife, now 59, to live a cosy life - if they did not have to settle the loans.
Mr Wong obtained his seven cards between 1985 and 1989. 'The banks and credit card companies kept sending me promotion letters and offered to waive the annual fee. I thought it was no harm at all to have more credit cards,' he said. 'Despite my heavy debts, they maintained my credit limit, with a couple of credit cards still providing me with a $100,000-odd limit.'
Mr Wong said it had been four years since he last saw his son, who was on the run from loan sharks for new gambling debts. 'He is our only son and we had to try to save him, no matter what,' the father said.
Mr Wong and his wife, who lost her low-paid job as a waitress last month, were considering personal bankruptcy and applying for the dole when they could no longer afford the repayments. The couple live in a 300-square-foot public flat in Oi Man Estate, paying a monthly rental of $1,200. 'No one wants to resort to personal bankruptcy or Comprehensive Social Security Assistance. But we do not have choices because we still have to repay the debts left by our son,' he said.
Thomas Tse Lin-chung, a solicitor who has been a volunteer for Caritas Family Crisis Support Centre since January 2002, helping families in heavy debt restructure their finance, accused Hong Kong's banks and credit card companies of being 'unethical' in doing business by encouraging card holders to spend and borrow more, regardless of their financial status.
'Many people see credit cards as a tool to borrow money because it is convenient, and the industry seems to encourage the cardholders to do so. For example, it is common for banks and credit card companies to increase the credit limit unnecessarily, and without giving prior notice to customers. That only encourages more spending and advanced money drawing.'
The lawyer said banks should have a moral responsibility to review the financial status of their cardholders regularly to make sure they could afford the repayments. But he said the industry seldom carried out regular financial assessment of their clients, unless they were heavily indebted.
'Retired people are most vulnerable to indebtedness because they no longer have regular incomes or rely on a meagre pension to repay their debts,' he said. 'Some retired people may not be able to change their spending habits overnight and so continue to spend in a generous way as they did before. Those retired people usually had their credit cards before they left their jobs. Some of them may continue carrying their debts forward after they retire.
'Hong Kong is a free market and we are not asking for a law to restrict business activities,' Mr Tse said. 'However, banks and credit card companies should be more self-disciplined when they do business. The Monetary Authority should put more pressure on them about this.'
Consumer Council deputy chief executive Connie Lau Yin-hing also slammed local banks and credit card companies for 'not being responsible enough' in running their businesses and using different market strategies to induce cardholders into spending and borrowing, with no regard to whether they can afford further debt.
'Some banks offer a slightly lower interest for their clients if they borrow more on their credit cards - it ends up with those people being more heavily indebted,' Ms Lau said.
'In the UK, the banks strictly follow principles of responsible lending and conduct prudent financial reviews of their clients. Our local banks are not doing enough in upholding these business principles.'
Ms Lau said credit card interest rates charged by Hong Kong banks and credit card companies were high compared to many other countries.
According to the latest survey by the Consumer Council, credit card interest rates vary between 17 per cent and 45 per cent for advanced cash, and between 15 per cent and 36 per cent for retail purchases. Some banks offer personalised interest rates of between 8.3 per cent and 33 per cent for long-term debtors.
The Monetary Authority, a statutory body that regulates all banks and financial institutions in Hong Kong, did not directly address the question of the conduct of banks, when asked by the South China Morning Post. The authority replied that local banks were subject to the authority's guidelines and the Code of Banking Practice to run their credit card business in a prudent and responsible manner. But it admitted the banks should conduct regular credit reviews on customers.
'In connection to this, positive data sharing which enables banks to better assess the credit standing of customers to avoid the problem of over-indebtedness was introduced in August last year ... There is, however, a transitional period of two years within which banks cannot generally use positive data in reviewing their existing customers.'
The authority received a total of 239 complaints about credit cards last year.
Hong Kong's largest bank, HSBC, charges a 24 per cent annual interest rate for its credit card advance cash, compared to around 17 per cent to 20 per cent in Britain, 10 per cent to 25 per cent in the US, and 14 per cent to 18 per cent in Australia.
A spokesman for HSBC said: 'Hong Kong has a different market as people here enjoy the benefits of low mortgage rates. We also believe that people using the cash advance are only the minority as most people use credit cards as a convenient way for shopping and dining out.'
A spokeswoman for Hang Seng Bank said the bank used the positive data sharing mainly for new applications or when adjusting credit limits for existing clients. But the bank insisted the majority of its customers did not use credit cards as a means of payment, as its customers would opt for personal loans which were charged at a much lower interest rate - as low as 8 per cent.
Another major bank, Standard Chartered, did not provide its local interest rates for credit cards or the rates charged by its overseas branches.
'Credit card interest rates are set with references to industry trends, market benchmarks and different characteristics in the local market, while different markets or countries that we operate may also vary, each with their own different market dynamics, different local economic landscape, different level of GDP, etc,' read the bank's written reply.
The bank claimed that it adopted a 'very stringent credit policy'.