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Sun 17 May 2009 04:00 AM

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Betrayed by our once-flexible friends

Can't pay just yet? Do not pass immigration; go directly to jail. How's that for flexibility, asks Andrew White.

Credit cards have long been dubbed consumers’ ‘flexible friends’. And for two decades of near-uninterrupted growth, the two were inseparable pals, allowing banks to pocket huge profits while consumers spent their way down the shopping precincts of Dubai, Paris, London and New York.

Now that the flipside of that plastic coin has been ruthlessly exposed by the credit crunch, relations are strained between consumers and their former companions.

Can’t pay just yet? Do not pass immigration; go directly to jail. How’s that for flexibility?

And nowhere is that more apparent than in the Gulf, where customers are finding themselves betrayed by the very buddies that backed them up when times were good. Et tu, Barclaycard?

Let’s be straight: any debt we accumulate must be serviced. We must live within our means and pay what we owe; there can be little sympathy for those who borrow what they can’t afford to return.

However, we also have a right to not get ripped off by the sudden rate hikes, unfair penalties and hidden fees that have become all-too common with credit cards — and that’s the real betrayal.

If the above sentence seems a little familiar (or unusually concise), that’s because I’m paraphrasing US president Barack Obama, who is currently lobbying the Senate for a bill designed to crack down on greedy credit card companies. It seems that whether you hail from Austin or Abu Dhabi, Manhattan or Makkah, card sharks are tearing chunks out of their clients.

In the US, President Obama has told Congress in no uncertain terms that he wants to be able to sign through a credit card reform bill by Memorial Day, May 25. “We need a durable and successful flow of credit in our economy, but we can’t tolerate profits that depend upon misleading working families. Those days are over,” he said last week.

It’s fine rhetoric, and the president has plenty of clout with which to threaten the banks, some of which are eating bailouts out of his hand, and will be forced to do so for the foreseeable future.

Nevertheless, Wall Street is fighting back.

Credit card execs warn that tighter regulations could make it more difficult for institutions to offer credit, or simply put credit out of the reach of ‘ordinary’ borrowers. They’re also pointing to rule changes already introduced by the Federal Reserve, designed to shield consumers from arbitrary increases in interest rates and inadequate time to pay the bills, and due to take hold next year.

Would that Gulf consumers had such legislation to cling to, even if it’s not enough for Obama. Instead, we have interest rate hikes that beggar belief, double-cycle billing across the board, and additional charge sheets longer than an MP’s expenses form. Can’t pay just yet? Do not pass immigration; go directly to jail. How’s that for flexibility?

At a time when the world is berating itself for its economic irresponsibility, demanding greater transparency and tighter regulation, the small print on our credit card applications is somehow becoming denser. Meanwhile, the Federal Reserve cuts its interest rate, the Gulf’s central banks follow suit… and then the high-street banks do nothing. They pass on passing it on.

At least in the US, the banks are finding themselves forced into some self justification. They may be making a mint, but it won’t be much longer that they will be able to squeeze blood out of their clients quite so pitilessly. Over here, by contrast, consumers are treated with all the common decency of cattle — cash cows, in fact — and milked until they are dry. It’s an abuse, and one that needs addressing.

Andrew White is the editor of Arabian Business English.

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paul 11 years ago

Given the current economic conditions, I am astounded that I am still bombarded by pushy sales people calling me to offer credit cards from Mashreq and Citibank, among others. They have no knowledge of my finances and yet are telling me I am pre-approved and just need to sign a form. They don't know how much I earn, how much borrowing I have and how many other credit cards I have. They don't seem to care. My friends have all experienced the same. These companies are heading for disaster if they are still handing credit cards out like this.

Skeptic 11 years ago

Excellent article, fully agree with it !!!! I just renewed my two cards with AMEX - a week later, they slashed my credit limite by 80%. Then a week after that, they 'Blocked' both my cards, even though there are no outstanding payments on either cards, with no explanation or reasons provided (speak to the Hand, err .. sorry the Call Centre and wait and wait only to be told - you need to send us a letter / e-mail). So I wrote them a stiff e-mail asking for a full refund of my subscription - since basically, they have taken money from me for a service which they refuse to provide. In any other Country, I could go to a 'Consumer Court' and sue them. Not here in the Middle East. Here you have to just grin and bear it, just get milked and not be able to do anything about it. No more American Express for me, ever. I would 'rather leave home without it', thanks !!!

riaz 11 years ago

Mr. White - Some points to your improve your perspective. The treatment in the jail in uae is close to 4 star - many residents would not mind accepting this kind hospitality. Of course credit must be serviced and since it is at prohibitive rates, prudence lies in both giving cards restrictively and judging ability to service. Card issuers could also reduce cost by getting rid of sales staff whose only interest is on acheiving numbers without any other criteria. Times are difficult but reminders of arrest at immigration is not the solution.

Christine 11 years ago

Many people that live in the UAE had a very comfortable life and ,yes, the companies do not check your financial status and just gives you a credit card. The building workers has credit cards and with their income, how will they afford to repay them or 3 or 4.... I can definately understand how easy it is just to live the levels of the "Jumeriah Jane's" life styles w/o the money because there are the credit cards to balance it out. Now recession...redundantcy.... It's like Monopoly, pass "Go" and collect $200 or "Go To Jail".... Or go to Terminal 3!!....... Which is the better option here.... Not fair for people who wants to stay and have a wonderful life because here, we have no welfare system to help us during this crises. Open visas, left homes , cars at the airport , and unpaid credit cards is the only option when it comes to this " scarey " level? You tell me.... I would rather be back in my "security blanket" , at home, with my love ones , elsewhere and not in jail..... What happens to these people that took option 1 and not 2. Not fair at all......

JC 11 years ago

While I agree that the banks are responsible for offering large levels of credit and now taking this away, I also think people know what living within their means is. I look at how many people have arrived here to work and have seen Dubai as a holiday where there is endless streams of credit that they can run away from when things get tough. Could you really get away with running up huge credit card bills in the UK or USA and not expect to have legal action taken? I think a lot of people have taken advantage of the system and now the people that actually pay their bills are paying the price.

Joh 11 years ago

Would it be a fantastic idea if all of us write to our banks to cancel our credit card effective now. If they can squeeze us, why dont we? Lets break their monopolistic attitude. Ideally these guys will run after you to initiate an account but if you have to cancel the card, they will never do it, they will let it run for life.

Mohamed 11 years ago

Dear Riaz, "The treatment in the jail in uae is close to 4 star " u make me laugh, jail is jail, unless they take you out for a walk every afternoon. I had a car accident back in my home country, it wasnt my mistake but i was in custody for one night, believe me i knew what it is to lose your freedom

Thunderclap Newman 11 years ago

Riaz, Point of clarification - don't know where you get the idea that jail in UAE is like 4 star - you have to be joking; I know of two friends over the years that found themselves having to accept the hospitality of the local jail and believe me they found it a very difficult and stressful experience.