Vietnam's central bank has taken decisive action to bolster transparency in the nation's credit card industry.

The move follows a shocking Vietnam Export Import Commercial Joint Stock Bank (Eximbank) case where a man's forgotten 8.5 million Vietnamese dong ($335) debt spiraled into an 8.8 billion dong ($348,000) liability after 11 years.

The State Bank of Vietnam's (SBV) new directive, outlined in Official Dispatch 2235 dated 25 March 2024, mandates that banks fully disclose all fees, interest rates, and calculation methods related to credit cards.

Furthermore, banks are now obligated to clearly explain customers' rights and responsibilities when opening and using the cards. These measures aim to prevent future debt shock and strengthen consumer protection in Vietnam's burgeoning credit sector.

A History of Hidden Fees and Confusion

Recent years have seen rapid growth in credit card usage across Vietnam. However, this expansion has been marred by increasing complaints about opaque fee structures and convoluted interest calculations.

Some customers faced unexpected and burdensome debt after being unaware of ongoing charges. In one instance, a bank demanded over 63 million dong ($2,500) from a customer who claimed no knowledge of spending on his card. Other cases highlight bank staff pressuring individuals to open credit cards alongside loan applications, leading to confusion and subsequent surprise fees.

The SBV has previously implemented consumer protection regulations in the financial sector. Yet, the recent headline-grabbing debt case and mounting reports of unclear fees indicate lax enforcement of these rules. The lack of transparency has damaged public trust, potentially hindering the healthy development of Vietnam's credit market.

No More Surprises

The SBV's directive centers on transparency and consumer protection. Banks now have a clear mandate to disclose all fees, interest rates, and the methods by which those interest rates are calculated. This focus on upfront clarity applies especially to credit cards.

Additionally, banks are obligated to ensure customers fully understand their rights and responsibilities when using credit cards. This educational component is crucial in empowering consumers to make informed financial decisions.

Accountability and Proactivity

Beyond communication, the directive also emphasizes internal accountability measures within the banking sector. Institutions must review and verify that their processes align with consumer protection regulations.

Furthermore, banks are expected to play a proactive role by monitoring card activity for unusual patterns that could signal fraud or misuse. By promptly alerting customers to potential issues, banks can help minimize financial damage.

Finally, the SBV document demands that banks be responsible for educating customers about data security and fraud prevention, aiming to reduce the risk of personal information being compromised.

Benefits are clear 

The SBV's response has the potential for far-reaching benefits. By ensuring upfront clarity on fees and interest rates, consumers will be better equipped to make informed decisions about credit card use. This could foster greater trust in the credit market, contributing to increased and more responsible adoption of credit products.

The chances of unpleasant surprises stemming from disputed debts should also decrease. Fewer legal clashes between banks and customers over disputed sums would benefit both parties.

Crucially, the SBV sends a strong message to Vietnam's financial sector: a commitment to weeding out hidden fees and questionable practices. This could discourage banks from engaging in tactics designed to ensnare customers, paving the way for a healthier credit market.

Yet implementation challenges remain

While promising, the directive's success hinges on robust enforcement. The SBV will need to ensure banks wholeheartedly embrace the spirit of the new regulations, not just make surface-level changes. Effective oversight will be vital.

Additionally, while banks bear significant responsibility, true consumer protection also depends on improving overall financial literacy in Vietnam. The SBV's move alone might not fully equip all consumers to grasp the finer points of credit products.

Official Dispatch 2235 represents a forceful and potentially transformative intervention to address a significant source of public mistrust in Vietnam's consumer finance landscape. By promoting transparency, the central bank aims to support the sector's long-term health. With effective implementation, it could usher in an era of sustainable credit card use built upon clear communication and consumer confidence.

The coming months will reveal whether the SBV can strike the right balance between robust enforcement and allowing Vietnam's credit card market room to evolve and compete.