Beware loose ends in personal debt clean up

SOME consumers have resorted to dangerous schemes in reaction to the tightening of rules on personal debt, making it necessary for the government to sort out the loose ends in its drive to curb indebtedness, professors of economics said yesterday.

Lim Kok Hsien, a lecturer of financial management Universiti Brunei Darussalam (UBD), recalled that when the government made rules more stringent on the taking of personal loans, consumers sought solace in credit cards.

"Now with the new directive on credit cards, customers are (resorting) to hire-purchase, swiping their cards and taking the cash without the products," he said, adding that retail outlets who connive with consumers are acting as financiers without the licence to do so and they are worse than loan sharks. "(Consumers) don't know what they're getting into. The interest rates might be more than banks' and it's quite dangerous."

Lim and Mohd Hairul Azrin Hj Besar, an economics and finance lecturer at Universiti Islam Sultan Sharif Ali (Unissa), found Bank Islam Brunei Darussalam's (BIBD) programme to consolidate clients' credit card debts beneficial to those who need help in managing their money woes.

BIBD offers to buy customers' credit card debts with other banks and help them pay off these obligations at a lower cost. This in exchange for customers transferring their payroll accounts to the Islamic bank. But even this solution can lead to some people believing they can abuse the scheme by maxing out their current credit card limits before enrolling with BIBD.

Mohd Hairul Azrin said BIBD's programme called 3CP is a good move because now customers only pay 5.75 per cent annual percentage rate over three years. With the introduction of this, he also said that customers won't have to deal with a lot of banks. Lim said he sees this as damage control and it's the current best option out there and it's better off for consumers to pay less than more.

Mohd Hairul Azrin added that credit card is not the moving factor here. "The worries with this scenario is there is now a three-month window opened where customers will basically max out their cards and switching to BIBD later to bail them out," he said. "For example, if I have a $12,000 debt, I will max it out and then transfer (it to BIBD) and instead of 26.8 per cent, I pay only 5.75 per cent," he said.

He went on to say that this offer is a kind of personal financing, people may just withdraw the cash now or spend it to enjoy it now before the three-month window closes.

Lim said that there should be a consumer watchdog to protect consumers from falling prey to shrewd businessmen. "The government needs a proper procedure to stop things like this (from) happening, they need to cut off all these loose ends," he added.

Lim also reminded that none of this will change consumer spending habits. It's not just the lower income group, but people with higher incomes are also fall into these habits.

"It's really important to educate the people so they won't fall into this hole again," said Lim who is considering starting a financial management consultancy facility at UBD.

"If consumers were more knowledgeable, there wouldn't need to be a directive in the first place, so there is an urgent need to educate consumers," said Lim.The Brunei Times