The credit card will then be blocked. All this with the noble purpose of helping defaulters get rid of their debts. The blockade replaces the fine that was previously given in the event of payment arrears.
A sensible idea? Or not?
But is this change in policy so noble? Let me take you into the business model of a credit card company. These companies first of all earn from the ‘subscription’, since you pay an amount per year to use your credit card. Sometimes you also pay extra for the statements.
The store where you use your credit card also pays a commission to the credit card company about your spending. And of course, that commission does not pay that retailer himself, that is all included in the selling prices. So you end up paying for this yourself.
You make purchases with your credit card
It currently works like this: You make purchases with your credit card. At the end of the month you pay for the purchases you have made. Without interest. It’s that simple. Unless you do not have enough money, you will be fined.
It seems strongly that this measure was taken earlier to generate ‘goodwill’ with the consumer; then it actually helps people to get rid of their payment arrears. As long as credit card companies still apply an interest rate of 10 to 14% when you want to repay in installments, that does not really match the goal of wanting to get people out of debt faster. It would also be crazy, because that is where the credit card companies earn their living.
Meaningless for almost 94% of consumers
Many consumers have a credit card to pay for their purchases on a monthly basis. A consumer can then choose to settle the bill in one go or pay it in installments. Given the level of interest that is charged for the spread repayment, 14%, only people opt for the latter option with their backs against the wall. Consumers who can just pay the bill will never opt for 14% interest. So actually this choice is not a choice. The consumers who choose this do not have the money needed to pay the bill and have to accept the 14%.
In addition, credit card companies are not well informed about the financial situation of their customers. They cannot prove that their customers who ‘choose’ to pay back in installments can repay the credit in a responsible manner.
Since credit card companies also have the legal duty of care to only provide responsible loans, they have now devised this measure. They are completely wrong, because this measure has been devised for a small group of defaulters, but it does not serve the interest of the majority of credit card customers.