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‘Scale back credit card access’
By Randy Howard
IT is being suggested that access to credit card debt be scaled back somewhat in order to have a dampening effect on excessive and potentially harmful spending by Barbadians.
The call has come from RBTT Bank CEO, Horace Cobham, who made the recommendation recently at a public financial education panel discussion held at the Grand Salle of the Tom Adams Financial Centre.
Entitled “Turmoil in the World Financial Markets – What does this mean for Barbados?” the discussion surrounded the developments that led to the global financial crisis, specifically the subprime mortgage meltdown in the United States, and begged the question as to what would be the impact on the local economy, and also whether a similar situation could occur here.
Cobham argued that, in his opinion, there is not much concern right now as it relates to the local mortgage market. However, where he believes the problem will lie is in the area of credit card debt.
“I do however believe that access to credit has become too available and I think where we are going to find ourselves being hurt is in the credit card debt area,” he said, adding that the use of this facility has become more widespread and that persons have been using the facility to make excessive purchases.
“I think a lot of people are using credit cards more readily and potentially misusing their credit cards, and I think that because, again, a lot of banks have given credit cards freely with pretty significant limits.”
In light of this, he believes that despite the fact that banks earn substantially on credit cards considering the level of interest charged when compared to other loan facilities, banks in Barbados should “look to see whether or not there is not some reason for us to step back a little”.
The spending pattern as it relates to credit card usage was also a concern raised by Governor of the Central Bank, Dr. Marion Williams, during her nine-month review of the local economy last week.
She indicated that she had called on the banking sector to apply the recent interest rate cut across the board on all credit facilities, and Cobham confirmed this by stating that the banking sector has passed on this reduction to credit cards.
It must be said that the 0.5 per cent rate cut would not be as significant for credit card holders as it would be for mortgagees, however, the Governor is aiming to reduce the burden on all creditors at this time.
Despite this aim, the point must be raised, given the concerns expressed in recent times about credit card usage, that although this cut is intended to ease the burden on existing creditors, a policy of rate reduction could possibly serve to encourage more spending via this facility, which would certainly have not been the intention.
As Cobham stated, “It’s an area where we have to monitor the encouragement to use that form of credit.”