Compound interest, high rate to blame for man's $358,000 credit card bill

The case has become a topic of public interest after Pham Huy Anh, a customer of Eximbank in his native northern province, said he never even received the credit card and therefore never spent the VND8.5 million that the bank claimed he did.

VnExpress calculated using both simple and compound interest rate methods at 87%, and the latter almost exactly matches Anh’s card bill.

Compound interest is calculated on the principal and accumulating interest, and is also referred to as "interest on interest."

Most banks use simple interest on loans since in recent years the State Bank of Vietnam has restricted the application of compound interest.

But the head of a bank card issuance department admitted policies related to interest are still "vague."

Eleven years ago, when credit cards were new in Vietnam, some banks adopted the compounding method, bankers said.

But banks usually stop charging interest on a bad debt that has been unpaid for five years, and instead make repeated phone calls to borrowers to remind them, they said.

The 87% interest rate the bank charged was much higher than normal, with the rate now capped at10%.

But the 87% rate was not illegal in 2013 and the 10% cap only came in 2017, the insiders said.

Eximbank has not disclosed the interest rate it used to calculate his dues.