Credit Card Levy15/04/2016 09:25
In the 2012 National Budget, the Government introduced a credit card levy with the intention to promote prudential financial discipline amongst consumers using credit cards.
Under this policy, commercial banks were to charge credit card holders a 2% levy on their monthly outstanding balance inclusive of interest and bank charges. The levy was then remitted to the Fiji Revenue & Customs Authority (FRCA) by the banks.
The application of the levy was not fair on consumers as card holders who paid up their account early i.e. before the due date, were still being levied the 2% charge because the levy was applied on outstanding balances at the end of the month. The billing did not follow the billing cycle of individual consumers.
For example Litia received her credit card statement with an outstanding amount of $5000 due on 22 April 2013. Litia paid $5000 as shown on the statement before 22 April 2013. After paying the outstanding amount, Litia continued to use her card from 23-30 April 2013. When Litia received her statement in May the outstanding amount included 2 % levy. Litia was confused because she paid the full outstanding amount and wondered why she has to pay the 2% levy. The bank explained to her that the 2 % levy was applied on the amount used by her from 23-30 April because credit card levy was applied on the month end outstanding amount irrespective of the statement date or due date.
Obviously, the application of 2% levy was unfair since no opportunity was given to Litia to clear her outstanding amount before the end of the month. Consumers are expected to pay the debt based on the due date stated on the statement. How else will consumers know when to pay their outstanding balance?
In light of this anomaly the Government amended the application of the levy in the 2013 Budget to align the imposition of credit card levy to individual card holders billing cycle. The whole point of the levy is to encourage consumers to be prudent and to deter debt on credit cards.
FRCA issued a public notice (Fiji Sun, 16 March, 2013) to all commercial banks on computation of credit card levy. FRCA advised that the credit card levy will be based on charging 2% on all outstanding balance on bank credit cards including interest and other bank charges, according to the individual credit card holder’s monthly billing cycle which shall be effective from 1 January 2013.
After this public notice, consumers were under the assumption that the 2% levy will only be charged on the outstanding balances after the due date shown on the statement based on their individual monthly billing cycle. For example, if Litia has been receiving her statement in the first week of the month with a due date around 22nd day of every month, it was understood that Litia’s monthly billing cycle for her credit card was around 22nd day of every month. Just like water and FEA bills where consumers are expected to be pay by a due date which is known to consumers as their billing cycle.
Unfortunately, the billing cycle is applied differently by some banks wherein these banks consider the billing cycle as the day the statement is released and not the date the bill is due for payment. The billing cycle is supposed to be the period under which there is usage and consumption. There are some banks that are still charging 2% levy at the end of the month or after the statement release day but not after the due date. However, it is significant to note that consumers’ are unfairly charged 2% levy whilst the issue remains unresolved.
The date a statement is printed or released carries little significance to consumers. Consumers are concerned whether the service provider gave lead time to make the payment on the due date on any statement or bills. One bank had placed notices in the newspaper but failed to define the billing cycle on the advertisement or on the credit card statement.
If the billing cycle means the day the statement is released, the 2 % levy is unnecessarily imposed on consumers without giving them an opportunity to pay the outstanding amount. In Litia’s case, the billing cycle (i.e. the date the statement was released) was on 25 April. Although Litia cleared all her outstanding amount billed by the bank before the due date, she was still charged 2% levy for using the credit card from 23-24 April. Is this fair? This defeats the whole purpose of the levy, that is, to encourage prudence amongst card holders and minimize consumer debt.
Logically, by interpreting “individual credit card holder’s monthly billing cycle” as statement release date, what difference does it make to consumers? After all, consumers will still be victimized for clearing their full outstanding balance by the due date shown on the statement which is against the intention of this policy.
Based on the FRCA’s public notice and the reasons for introducing 2% levy, consumers are now waiting to get their 2 % levy reimbursed particularly when they cleared all the outstanding amount before the due date.