The clarion call by the banking institutions for people to arm their pockets with two or three credit cards is a two-edged sword. Yes, credit cards offer a very easy form of payment and in some cases can take the place of overdrafts or short-term loans. Credit cards also eliminate the use of travellers’ cheques and letters of credit.
However, there is a seedy side to credit cards that is not disclosed by the recent clarion call, and there is a dangerous side to credit cards as it concerns the country. By the way, it is illegal for a bank to increase the credit limit arbitrarily to accommodate a transaction rather than reject the sale.
First of all, if you go into a bank and successfully secure an overdraft or loan now, the going rate could be nine or 11 per cent, maybe slightly more if a discount loan is offered. To my knowledge, a residual balance on a credit card will cost you in the region of 28 per cent. If there is a late payment in any month, the fee can be $40 or more. In addition to annual fees, if a foreign transaction is involved there is exchange charge as well as a fee; plus the bank insures its credit card use and an insurance fee is applicable. None of this has been disclosed in the euphoria of the sales pitch.
But there is something more pernicious in the use of cards. Whereas using cards for foreign transactions was at one time confined to the few and hardly had an impact on foreign reserves, today the floodgates are open. This may be a good thing for the banks and for democracy, but it should be a concern for the Central Bank especially at this time of austerity. A customer could travel several times in a year, each time utilising BDS$10 000 (say $50 000 in all). He can repay the foreign currency used in Barbados dollars. Before, each drawing for $10 000 would be noted in the passport and Central Bank’s permission would be required for more. However, this is said to be part of the liberalising process.
Everyone now is getting into the credit card business. You do not need a bank credit card to shop in a supermarket or retail stores. Have they replaced the banks without the inherent tax overheads Government charges to banks, as they have now become lending institutions? What about Central Bank supervision? Here is where the minister may recover his tipping fee. Credit card business is lending money. So are the supermarket and stores lending money? Are they banks? Can they charge the same as banks? Does the Rate of Interest Act 55 of 1975 apply to them?
We in Barbados have made some awful decisions; worse of all we sold Barbados Shipping & Trading. A pock on the decision-makers. Those decisions are haunting us and will continue to do so as they haunt our pockets. More so the beneficiaries of the decisions, the Trinidadians, have a poor conception of the ethos of Barbados especially at this time, and solely regard it as a trough in which to feed and get fat. Never mind the recent statements of a leading banker that may in fact be true.
Unfortunately Barbados is in no position under the present administration to defend itself. Consequently, the foundations of the structure are being seriously challenged.
The Wild Coot has an issue with the latest reported recommendations of the International Monetary Fund (IMF). “Cut who can pay!” This will strengthen the divide that now exists in Barbados. It will further tighten the screws on the middle class aspirations. What criteria will be used to determine the cutters and the cuttees? We may be right about the observations of the IMF when it speaks about the inordinate printing of money, but in this particular respect it needs to look again. Of course if it is referring to the benefits of the politicians as “cuttees”, they may have a point.
The Wild Coot is interested in seeing the reaction of the commercial banks and the credit unions in responding to the Government’s decision that they assume the responsibility of being the first payers of income tax and VAT refunds. The gauntlet is laid at their feet. We will see which bank has the testicular fortitude not to comply. Just suppose that in one day the banks and the credit unions receive demands for $200/$300 million with attendant fees. However you look at it, any of the payers is entering a dark room blindfolded. I was always taught to assess the risk. Perhaps the banks and credit unions will each day amalgamate the requests for payment before paying.
The banks will be complicit in the printing of money if they assist the Central Bank in the frontage.
• Harry Russell is a banker. Email quijote70@gmail.com
