Archive for September 15th, 2005

Credit Card Bill Approved, amateur hour at the Assemby

September 15, 2005

The Venezuelan National Assembly completed the approval on its second
discussion of the Credit card, debit card, prepaid card and other
Electronic Instruments Bill. The Bill as proposed represents another
significant intervention in the activities of the financial sector
which will simply elevate costs and decrease the quality of service.
While the intent is to protect the consumer, the articles approved so
far indicate that it is likely the consumer who will be most affected
by it.

To begin with, the bill as proposed, will ban banks from
charging commission for ATM withdrawals and services. This will clearly
reduce the scope of the current networks which are for profit systems
shared by many banks. Banks will likely being dismantling these
networks if they can not charge for services.

One of the most
difficult and complex parts of the Bill is that it requires banks to
charge a different interest rate for goods which are part of the so
called “basic basket” of goods. The rate for these goods would be 50%
of the prevailing credit card rate. It is unknown how the banks will be
able to distinguish the different types of goods purchased, as well as
the complexity introduced in separating these two types of items in the
Bill.

The Bill also would require banks to install cameras and
fingerprint grabbing machines at all ATM’s in order to reduce fraud and
protect consumers. This has an absurd cost, more so in a country with
average deposits per account which are much lower than international
standards and most of these machines are imported. Clearly, the
consumer will end up paying for this in the form of higher interest
rates for credit. Additionally all ATM’s will have to have Braille
characters on them for the blind.

The bill also prohibits banks
from charging interest on interest, which was expected after the
Government, has prohibited this for a number of financial instruments.
The Bill includes penalties for violations, including fines and jail
time in the case of interest charges above those mandated by law.

The
part about the interest on basic goods being half of the usual interest
is not only absurd because of its difficult implementation, but also
because credit card penetration in Venezuela is very low. There are
some 800,000 Venezuelans with credit cards or only 3.2 % of the
population, so this type of implied subsidy simply makes no sense.
Moreover, I can already see people lining up to buy liquor and have it
billed as meat, so that it gets half the interest. What’s next, the
interest rate discount police to stop that?

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