WE HAVE recently witnessed 'the great credit card debate'. It is about who should pay for unauthorised credit card charges: Banks or their customers?

TEXT & ILLUSTRATION: LARRY HAVERKAMP & MAROO

Incredibly, after all that debate, we still don't know the answer.

Now, some good news. I received data on Friday which I believe will solve the mystery.

First, some background: The whole thing started when Ms Tan Shock Ling, 39, had her credit cards stolen.

Before she knew it, the thief had spent $17,100 including purchase of three Rolex watches. If you see a guy wearing three Rolex watches, call the police immediately.

It was clear-cut fraud, but the bank told Ms Tan to pay anyway.

It's because the fine print in her credit card contract says she is liable for charges until she reports the card lost or stolen.

The rule applies even though she doesn't know her credit card is missing.

Two notable exceptions are American Express which limits cardholder's liability to $100 and Maybank with a $500 limit.

Other countries like US, Malaysia, Britain and Australia also limit a cardholder's liability. Should we do the same?

The Association of Banks of Singapore (ABS) gave reasons for the rule in The New Paper's 2 Aug report.

ABS said: 'This helps avoid moral hazard. If the customers suffer no loss, it is felt they would have no incentive to be careful or to report lost cards promptly.'

The other side of the debate is no one loses their credit card on purpose, so small penalties for losing your card should be as effective as big ones.

For example, it costs only $100 to replace an identity card. It isn't much but I still try my best not to lose my IC. So far I never have.

Which view is correct?

The first piece of the puzzle is from The New Paper's 2 Aug credit card report. The police said there were 264 cases of credit card fraud last year.

We own over five million credit cards, so it translates to one fraud for every 26,000 credit cards, which is 0.005 per cent.

A Monetary Authority of Singapore spokesman said: 'Incidence of credit card fraud in Singapore is among the lowest in the world.'

Is it really true that fraud rates would zoom higher if consumers didn't have to worry about paying for unauthorised charges if they lose their credit card?

If only we could compare our fraud rates to a country that limits credit card liability.

If they had more fraud, we could conclude that limiting cardholder liability is a bad idea.

We can compare! Malaysia limited credit card liability to RM250 ($100) in March 2003. Before that, in 2000, their credit card fraud rate was 0.002 per cent. By 2008, it had risen to 0.009 per cent.

Not only had it risen, it is nearly double Singapore's 0.005 per cent in 2008.

At first glance, it looks like liability limits in Malaysia resulted in more fraud.

Sorry. That is wrong.

A Bank Negara spokesperson told me, 'Although fraud level is increasing, it remains negligible.'

I ran a statistical test to confirm this. It shows there is no significant difference between fraud rates of 0.002 per cent and 0.009 per cent. The latter number is only one out of every 11,000 credit cards.

Using statistical terminology: The numbers are teensy-tiny, eensy-weensy.

Comparing between countries as well as over time, Malaysia's RM250 credit card liability limit shows no tendency to increase credit card fraud.

The banks' moral hazard argument is false.

Interest rate cap: S'pore vs M'sia

ONE more comparison. Our banks cap credit card interest rates at 24 per cent.

In Malaysia, the interest rate cap has been lowered to 17.5 per cent from 1 Jul 08.

The cap drops further - to 13.5 per cent - for customers who settle their bills promptly.

Banks in Malaysia have a higher cost of funds and must also pay for unauthorised credit card charges in excess of RM250.

Yet they are able to offer much lower credit card interest rates while still making profits.

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