A campaign to educate credit card issuers & users

Users are not the only ones who should be responsible about credit cards - issuers must be too

A QUESTION OF BUSINESS By P. GUNASEGARAM
p.guna@thestar.com.my

  IT is interesting to note that the National Cards Group – a grouping of Malaysian credit card issuers, mainly banks – has launched a campaign to inculcate responsible credit card usage among consumers.

They have called the campaign Swipe Smart with 6E, 6E being the so-called six enablers – educate yourself, exercise caution, enhance your lifestyle, enjoy the benefits, eliminate debt and engage with your card issuer.

Well and good. One should not pour cold water on such a noble deed by the card issuers to ensure that their customers are educated and know how to use the card responsibly without getting themselves – and in the longer run the issuers – into trouble.

It was good to see too that there were representatives from Bank Negara, the Federation of Malaysian Consumer Associations (Fomca), the Association of Banks and others there.

The only thing that was lacking was a similar campaign for card issuers, yes, you read right, the card issuers. You see, the credit card problem is a double-edged sword – both the behaviour of issuers and users contributes to delinquency. Eventually, if things really get bad, both sides will suffer – the users may become bankrupt and the banks may be saddled by high bad debts.

Both parties have to be responsible and there has to be a balance of profit with responsibility. There is a need to educate the card issuers too to, using the words of the National Cards Group but applied to itself this time, to inculcate responsible credit card issuance among card issuers.

We will even call the campaign by the same name – Swipe Smart with 6E – with its own six enablers. We hope, Fomca, who was present there, will take the cudgels up on behalf of the consumers, call the issuers and launch this campaign.

Here is our proposed 6E campaign directed at card issuers:

1. Eliminate profiteering such as late payment charges. We have written about this before. The effective interest rates on this are extortionate and exorbitant. If you are late by one day on an outstanding balance of RM100 (even if your credit limit is RM100,000!) the charge is RM50. That’s 50% a day or 18,250% a year! Now what entitles the bank or issuer to charge you such an interest rate when your credit limit is RM100,000 and you have an unutilised portion of this of RM99,900? If that is not profiteering, what is?

2. Ease up on your interest rates. Most of us pay 18% a year on balances outstanding when the fixed deposit rate is not even nudging 3%. They take your money at 3% or less, then lend it back to you for 18%! Housing loans are at 6%, why is the credit card interest rate three times that at 18%, a rate that only licensed money lenders charge?

3. Exercise restraint in your marketing. These days, have one credit card and other issuers deluge you with cards and offers. Sometimes they send a card to you that you don’t want and then three months later bill you for service charges! Then I have to call them – it takes ages to get through with a robot asking you whether you want to do this or that before you finally get through – and demand they withdraw their statement. And then they offer credit cards to all manner of people who don’t know how to use them or abuse the credit lines, so long as they have a regular salary – civil servants are great targets. And because they have a salary, the banks can get their money back – with huge penalties to boot.

4. Engage with your customer. Before they send us all that unwanted promotional material, the issuers should ask us if we want them. They should remind us – constantly – that outstanding balances cost us 18% a year, the highest rate of any bank facility, and if I am not mistaken, the highest possible legal lending rate.

5. Educate yourself on social and ethical responsibilities. Yes, we know profits are all important and yes we know there are a lot of ignorant people out there from whom money can be made. But don’t financial institutions have a social and financial responsibility to their customers, especially people, and to inform them fully of how they make money from them? If issuers want to educate the public on the dangers of credit cards, they should educate themselves on immoral behaviour and how the drive to profit stops them from truly educating the general public.

6. Explain all your charges and actions fully. I have not yet found an issuer who advertises that the penalty charge for late payment is as high as nearly 20,000% a year. Perhaps they should print this on the envelopes they mail to customers. And how many people know that many credit cards issuers impose a service charge on overseas spending, have unfavourable exchange rates for transactions, and have service fees for interest-free instalment payments? Can they tell us why they are not pushing debit cards (no interest here, the funds are transferred directly from your bank account) equally hard? The list goes on. It is time, if the issuers wanted to educate the public, for them to take huge full-page advertisements to fully disclose all their charges in the simplest possible language. If they can’t find anybody to write the copy for them in simple language, I volunteer to do it for free.

Well, that’s our 6E Campaign aimed at educating our banks and other card issuers in brief. We hope somewhere out there some consumer organisation will take up this case and that the authorities will sit up and take notice and realise that issuers too contribute to the credit card problem.

■ Managing editor P Gunasegaram notes with some trepidation the following figures for credit card usage in Malaysia: there are 9 million cards and the average transaction through cards is RM211mil a day or RM77bil a year. That’s a lot of potential for some to make a lot of money and a lot of others to lose some.

Other related stories:
Importance of keeping a good credit record
Having a reasonable amount of debt is generally okay

Saturday November 6, 2010

Comments by A wary reader

Of educating credit card issuers and users

P. Gunasegaram’s article entitled “A campaign to educate credit card issuers” is interesting.

But another important interest charge also needs to be highlighted. Do you know that if you do not make full payment on or before the due date, you lose the 20 days credit free period for both the current and new transactions posted on the statement?

In addition to the RM50 late payment charge, the finance charge is even higher.

For example: You receive the September statement on Oct 5 and the outstanding charge is RM1,200 and you need to settle it by Oct 20.

Say for some reason or the other, you overlook the matter and do not settle the outstanding in full by Oct 20. How much is your finance charge?

Let’s assume you settle the full outstanding of RM1,200 on Nov 5. You’d expect the bank to charge a finance charge of 17.5% pa based on daily calculation from Oct 20 to Nov 5, right?

Wrong. The bank will compute the interest outstanding from the transactions posted date till Nov 5.

In addition, all the new transactions will also attract interest charge. In short, the bank is penalising you twice on the old and new transactions.

If you do not settle the outstanding in full before due date, you lose the 20 days interest free period.

As such, the campaign should also educate the public to settle the full outstanding amount by due date. Banks, of course, will not highlight this point to the public. It’s one of their main revenue streams.

Rejuvenating George Town, Penang

Three sound recommendations for Penang to break out of the middle income trap

 THINK ASIAN By ANDREW SHENG

EVERY time I open my window, I see paradise – not heaven, but a neon sign for Paradise hotel in Penang island or more precisely, George Town, Pulau Pinang.

Situated at the entrance to the Malacca Straits, directly opposite Kedah Peak, the city was founded by Sir Francis Light in 1786 as the first English bridgehead to East Asia.

Since then, George Town has been a melting pot for Armenians, Arabs, Malays, Indians, Chinese and European travellers passing through the Far East.

At its height at the end of the 19th century, the city boasted the earliest bank branches in the country with key trading ties to Sumatra, Burma, Southern Thailand and Northern Malaya.

Like people and countries, cities have their ups and downs. When I first set eyes on Penang, my first impression was green rice-fields from the airport to a tree-lined city with a lovely, relaxed colonial feel.

George Town boasted the oldest and arguably best schools in the Far East. After duty-free status was removed and Sumatra and Southern Thailand went through a period of relative decline, the Penang economy had to reinvent itself, initially with the electronics industry.

But by the turn of the 21st century, even the electronics industry felt under threat as Penang talent left for richer shores.

What should Penang do?

A recent joint study by the World Bank and Khazanah Nasional Bhd brings forth a timely and well-researched book, “Cities, People and the Economy – a study on Positioning Penang” to discuss how Penang can escape the middle income trap.

Drawing on empirical studies by a team of internationally-renowned researchers, the book examines how the State of Penang needs to re-invent itself.

Having been successful in becoming industrialised through cheap labour, subsidised infrastructure and available land for low-tech manufacturing, Penang must now focus on developing industries which bring new competitiveness against the growing giants of India and China and other middle-income countries that are eating into Penang’s traditional strengths.

The editors of the book comprise three eminent economists who are clearly concerned about the need for Penang to reinvent itself.

Homi Kharas was formerly the chief economist for East Asia for the World Bank and currently at the Brookings Institution and a member of the National Economic Advisory Council.

Dr Albert Zeufack is a Cameroon national, formerly with the World Bank and currently working for Khazanah. Hamdan Majeed is the energetic head of the Penang office of Khazanah and deeply committed to Penang’s revival.

The central thesis of the book is that the three elements of Penang’s growth – its cities, people and economy – are not developing in tandem and that their cycles of development must be synchronised to turn Penang around.

Fortunately, following George Town’s world heritage designation, the urban cycle is starting to enter a recovery phase. But the challenge is that the people cycle is still in a deficit phase, with new graduates choosing to leave the area, while the economy is caught in a slump.

The authors carefully argue that a new development strategy must be articulated that can guide Penang to better wages, jobs and prospects for the next generation.

Penang must move from the old “sweatshop” assembly model to become a “smartshop” for sustainable products. Restoring lustre to the “Pearl of the Orient” does not have a simple engineering fix.

Instead, Penang must do different things and do them differently. Given its strong track record of economic success, Penang must set a new multidimensional agenda to become the most vibrant economic hub for its economic geographic advantages – the northern Peninsular Malaysia, Sumatra, Southern Thailand and through good air and telecommunications, South, North and Southeast Asia.

Given its strong base of human talent, with affinity for community harmony and creativity, particularly in the culinary and service area, Penang offers the best opportunity to break out through innovation and change.

The book offers three sound recommendations to break out of the middle income trap. The first is to exploit economies of scale through specialisation, focusing on a few products where it is possible to achieve global excellence.

The six focus areas identified are technology-based manufacturing, biotechnology/life sciences, business process outsourcing (BPO), logistics, tourism and agribusiness.

Secondly, Penang must build density on the basis of an integrated land use plan while also ensuring efficient connectivity with the capital city.

Thirdly, Penang needs to increase its “liveability” factor, which is the key factor determining competition for top global talent.

Underlying the strategic concept is the premise on what the Government can do to facilitate sustained development in a middle income region.

Penang’s experience will provide valuable lessons for other states in Malaysia. What makes this book valuable is that it offers a development strategy that can be applied not just for Penang but also Malaysia as a whole.

It recognises that a city (and a nation) has to understand its place in the global economy and in regional supply chains.

Penang, and by extension Malaysia, can become an advanced economy by 2020 if it becomes globally connected, regionally oriented and locally centred.

But it can only do so if all parts of the nation, city and rural areas work together through efficient connectivity. What comes through the book is that Penang’s development is not a stand-alone objective.

Put simply, Malaysia’s targets of the New Economic Model cannot be achieved without successful development in Penang. Greater density of economic activity in the Northern Corridor will benefit all states and accelerate the reduction of poverty in Malaysia.

Thus, if the Northern Corridor can escape the middle income trap, then, so can Malaysia. This is a timely and relevant book as it comes out at the same time as the 10th Malaysia Plan.

The book will be useful for policy makers and those interested in the rejuvenation of cities as engines of economic development. It will also help interested citizens to understand how cities can change. George Town has always been a jewel in the Orient, which is why I live here.

■ Tan Sri Andrew Sheng is adjunct professor at Universiti Malaya, Kuala Lumpur, and Tsinghua University, Beijing. He has served in key positions at Bank Negara, the Hong Kong Monetary Authority and the Hong Kong Securities and Futures Commission, and is currently a member of Malaysia’s National Economic Advisory Council. He is the author of the book “From Asian to Global Financial Crisis”.

Rare earths

China vows not to use rare earths as leverage

A stalk of wild grass grows off soil from an old site of a rare earth metals mine on the outskirts of Longnan county, in Jiangxi Province October 27, 2010.

Credit: Reuters/Jason Lee

A stalk of wild grass grows off soil from an old site of a rare earth metals mine on the outskirts of Longnan county, in Jiangxi Province October 27, 2010.

By Aileen Wang and Lucy Hornby

BEIJING (Reuters) - China said on Thursday it will not use its dominance of supplies of rare earths as a bargaining tool with foreign economies, and the United States said it hoped trade in the high-tech ores would continue as normal.

China has slashed export quotas and reduced shipments to Japan, igniting international concern that it could use rare earth exports as an economic or political lever. Prices have spiked and mining firms are rushing to develop sources of the minerals outside China.

The U.S. and European Union this week said they were pressing for solutions to fears that China was choking supply of the substances used in lasers, computers and superconductors, among other applications, and the issue is expected to figure at next month's G-20 summit.

Chinese Ministry of Industry and Information Technology spokesman Zhu Hongren said Beijing sought international cooperation.

"China will not use rare earths as an instrument for bargaining," he told a news conference on Thursday. "Instead, we hope to cooperate with other countries in the use of rare earths on the basis of win-win outcomes and jointly protecting this unrenewable resource."

The ministry is one of several in China that oversee rare earths.

Zhu was speaking on the same day a newspaper published by China's Ministry of Commerce urged China to resist pressure to allow foreign firms more access to its rare earths.

U.S. Secretary of State Hillary Clinton said she was unaware of China's vow not to use them as a bargaining chip, and, speaking in Hawaii, said she would welcome any clarification of China's stance on the minerals.

"I ... hope that it means trade and commerce around these important materials will continue unabated and without any interference," Clinton told a news conference with Japan's foreign minister.

"At the same time, because of the importance of these rare earth minerals, I think both the minister and I are aware that our countries and others will have to look for additional sources of supply," she said.

One engineering firm, Japan's Nidec, has already said it will start making motors that do not use rare earths to lessen reliance on the minerals.

China supplies about 97 percent of the world's demand for rare earth metals, which possess magnetic, luminescent and other properties used in emerging clean energy technologies, computers and electronics.
Prices of some rare earths on world markets have increased tenfold this year, reversing a long-trend toward lower prices caused largely by greater Chinese production over the past two decades.

In response to higher prices and worries among major consumers such as Japanese hi-tech industries that they will be unable to rely on large scale deliveries from China, mining firms are scrambling to speed up mine development timetables.

Shares in potential producers of the minerals outside China, such as Molycorp and Lynas Corp have rocketed since July, when China said it was reducing exports by 72 percent in the second half of the year.

Australian firm Arafura Resources on Thursday raised A$90 million ($87.5 million) to develop a rare earths project, but some analysts have said the long-term investment case for the minerals may be weak, and the market has the makings of a bubble.

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Energy

Can the U.S. Rare-Earth Industry Rebound?

• Friday, October 29, 2010
• By Katherine Bourzac

The U.S. has plenty of the metals that are critical to many green-energy technologies, but engineering and R&D expertise have moved overseas.

Rare-earth elements were obscure until the past year, when China, their primary producer, tightened export quotas on the materials. Rare-earth elements are used in a multitude of technologies, including magnets for wind turbines, hybrid-car batteries, fluorescent lightbulbs, and hard drives.

China is not the only country with significant reserves of these valuable materials; in fact, the U.S. was their primary producer until the 1990s, when the Chinese began undercutting the Americans on cost. Now companies in the U.S. and Australia are ramping up production at two rich sites for rare earths, but the process will take years. Getting from rocks to the pure metals and alloys required for manufacturing requires several steps that U.S. companies no longer have the infrastructure or the intellectual property to perform.

Contrary to their name, rare-earth metals are abundant in the Earth's crust, and significant reserves are concentrated in the United States, Australia, Brazil, and other countries. According to the U.S. Geological Survey, there are 13 million tons of extractable rare earths in the United States, 5.4 million in Australia, and 19 million in Russia and neighboring countries. In 2009, China had 36 million.

In the 1970s and 1980s, the Mountain Pass mine in California produced over 70 percent of the world's supply. Yet in 2009, none were produced in the United States, and it will be difficult, costly, and time-consuming to ramp up again. "When you stop mining in this country, as investment goes down, expertise on cutting-edge technologies is exported as well," says Carol Raulston, spokeswoman for the National Mining Association. Rare-earth researcher Karl Geschneidner of the Ames National Laboratory in Iowa also sees a lack of what he calls "intellectual infrastructure" for rare-earth technology development in the United States.

The two mines that will be stepping up production soonest are Mountain Pass, being developed by Molycorp, and the Mount Weld mine, which is being developed by Lynas, outside Perth, Australia. Mountain Pass has the edge of already having been established. But the company cannot use the processes used in the mine's heyday: they're both economically and environmentally unsustainable.

Several factors make purification of rare earths complicated. First, the 17 elements all tend to occur together in the same mineral deposits, and because they have similar properties, it's difficult to separate them from one another. They also tend to occur in deposits with radioactive elements, particularly thorium and uranium. Those elements can become a threat if the "tailings," the slushy waste product of the first step in separating rare earths from the rocks they're found in, are not dealt with properly.

Mountain Pass went into decline in the 1990s when Chinese producers began to undercut the mine on price at the same time as it had safety issues with tailings. When the Mountain Pass mine was operating at full capacity, it produced 850 gallons of waste saltwater containing these radioactive elements every hour, every day of the year. The tailings were trucked to evaporation ponds. In 1998, Mountain Pass, which was then owned by a subsidiary of oil company Unocal, had a problem with tailing leaks; four years later, the company's permit for storing the tailings ran out and Unocal did not pursue its renewal.

Meanwhile, throughout the 1990s, Chinese mines exploited their foothold in the rare-earth market. The Chinese began unearthing the elements as a byproduct of an iron-ore mine called Bayan Obo in the northern part of the country; getting both products from the same site helped keep prices low initially. And the country invested in R&D around rare-earth element processing, eventually opening several smaller mines, and then encouraging manufacturers that use these metals to set up facilities in the country.

Meanwhile, worldwide demand for rare-earth elements has been growing. This year demand was 125,000 tons; by 2015, it is expected to grow to 225,000 tons, and Molycorp spokesman Jim Sims notes that this projection does not include the wind-turbine industry, which is expected to be a major market. State-of-the-art wind turbines like those that will be installed at the world's largest wind farm, an 845-megawatt facility in Oregon, use high-efficiency rare-earth magnets. They can be 10 times lighter and smaller than comparable magnets but equally strong. Each of these magnets requires a ton of rare earths, Sims says.

Molycorp renewed the Mountain Pass mining permit and began R&D of its own in 2004. This year, using rock that was mined before a previous permit expired and new separation technologies it has developed, the company will sell 3,000 tons of rare earths. By 2012, Molycorp expects to produce 20,000 tons a year, and under its current mining permits could double capacity to 40,000 tons. Sims also says the company will sell rare-earth products at half the cost of the Chinese in 2012. According to the company, these savings will be made possible by several changes, such as eliminating the production of waste saltwater. Molycorp will use a closed-loop system, converting the waste back into the acids and bases required for separation and eliminating the need to buy such chemicals. The company will also install a natural-gas power cogeneration facility onsite to cut energy costs.

But Ames Lab's Geschneidner notes that one major source of cost in the separation process can't be eliminated--the fact that it simply takes a long time. Milled rock is shaken again and again in a mixture of solvents to separate the elements by weight; depending on the ultimate purity that's required, this must be done 10,000 to 100,000 times. The result is then sold as a concentrate or treated to produce rare-earth metal oxides.

Even if Molycorp does succeed in reducing the costs of separation by half, the next step in production may cause a hiccup. Rare-earth oxides and concentrates do have a market, for example as catalysts for the petroleum industry, but they can't be made into magnets. To make magnets, rare-earth oxides must first be converted into pure metals, a process that produces caustic byproducts, and is done solely in China today. Sims says that Molycorp is investigating pathways that are environmentally friendly and aren't covered under intellectual property owned by foreign companies. These metals must next be made into alloys suitable for the magnets, another capability that's concentrated overseas, mostly in Japan and Germany.

The company's goal is to control every step along the supply chain, through production of alloys and eventually the magnets, too. Here, too, the U.S. lacks infrastructure and intellectual property, so Molycorp hopes to license or buy patents on making alloys, and will make magnets through a joint venture with another company.

By going public in July, Molycorp raised $379 million of the $511 million the company believes is required to put in place its projects by 2012. A bill pending in the House and the Senate would offer loan guarantees for Molycorp and other investors in rare-earth mines. And the company has applied for loan guarantees through the U.S. Department of Energy, which will give a final decision next summer.

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