November 26, 2008
SONYA FATAH
THE TORONTO STAR
NEW DELHI–For months, Ajit Singh had been chasing off calls from collection agencies. The calls then turned into home visits with threatening overtones. Finally, a collector came to his home, hurled a volley of abuse at him and threatened to beat him up.
Singh, 31, called the city’s police hotline, and was rescued just in time. But others, who have amassed vast debts in a scramble to be part of India’s new consumer culture, haven’t been so lucky.
India today boasts roughly 10 million credit-card customers. But consumer credit is relatively new here. Transactions have historically been cash-based.
Without a federal credit-checking system, and no legal apparatus to make cardholders responsible for their payments, companies have resorted to outsourcing recovery companies, which send out thugs and goons to intimidate clients, and in some cases beat them up.
Over the last few years, banks have targeted India’s rising middle class, an estimated 300 million strong population that forms India’s mass consumer market. They’re the target market for advertisers using massive billboard ads, full-page newspaper advertisements and television promos featuring Bollywood actors.
“There has been a geometric growth in credit card holders among the Indian middle classes in the last 10 years,” said S.R. Khanna, of Consumer Voice, a volunteer organization that seeks to improve consumer awareness. “Borrowing for consumption was not a part of the social practice in traditional India.”
But now the rush to purchase glitzy new products – from washing machines and fridges to the latest in cellular technology – has been intense over the last few years. Those purchases have been possible thanks to a liberal handout of credit cards, leading to massive amounts of individual debt that is now beginning to cripple those who splurged in their desire for an elevated, more fanciful lifestyle.
That’s exactly what Singh did.
After he got a job as a sales manager last year with Bajaj-Allianz, a major insurance company and began earning a monthly salary of 19,000 rupees (roughly $460), Singh found his desk flooded with offers from credit card companies. He accepted them all, and before he realized it, he’d amassed about $2,950 in debt.
Consumer aid organizations claim banks tack on additional charges and fees, aside from the interest rate, forcing customers to pay much more than they legally owe.
“One lady came to me in complete distress,” said C.V. Giddappa, general secretary of the Credit Card Holders Association, a voluntary organization formed in 2001 to protect the interests of cardholders.
“She had bought a television for 10,000 rupees (approximately $246) on her Standard Chartered credit card, and she was making monthly payments of $24. She made 17 payments, and after she had paid almost double the cost of the original item, her balance had reached a ridiculous ($566).
Giddappa’s organization recently filed a suit for a refund of some $1.2 billion. “We have investigated the balance sheets of these credit card companies and its clear to us that they are looting customers,” said Giddappa.
Others believe the onus also lies with the Indian consumer to take responsibility for poor borrowing practices.
“There are two sides to every coin, and the situation is complicated because Indian consumers don’t want to pay their monthly balances either,” said S.K. Virmani with the National Consumer Hotline. “They know they can just get another credit card and keep purchasing so they try to trick the system.”
Whatever the case, there’s no doubt that banks have resorted to all sorts of means to recover bad debt. In the western Indian city of Ludhiana, last month, Vivek Uppal, a businessman who had reached a settlement to end his financial woes, was picked up by two strongmen and a police officer, taken to a warehouse and beaten up.
“They abused and tortured me to pay 250,000 rupees as a recovery of the credit card,” Uppal wrote.
In the end, Uppal had to hand over an extra $2,000, despite official letters from the bank that stated otherwise.
Uppal’s case is not unique.
In mid-October this year, a family of four in Mumbai who were renting an apartment in a plush suburb of the city, committed suicide after debt accumulating on their 72 credit cards became enormous.
It’s likely that things won’t look up unless clients are better informed, and unless a federal system of credit checks is enforced.
“(The middle class) have been systematically trapped into debt,” said Giddappa. “The bank issues them one credit card, and … before they know it they have 10 to 12 credit cards, and they’re wrapped in a vicious cycle of debt.”
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