3% a month credit card interest excessive—SC

THE 3-percent interest rate that local credit card companies charge their cardholders is “excessive and unconscionable,” the Supreme Court has ruled.

The decision was handed down last month, but the high court ruling has been overlooked by a politics-obsessed and, lately, flood-swamped, media.

The decision is likely to rattle banks and credit card companies amid the stresses caused the worst flooding to hit Metro Manila and the key provinces of Luzon in recent memory.

The case stemmed from a complaint for sum of money filed by Bank of the Philippine Islands against a couple who defaulted on their payments to BPI Mastercard.

The facts of the case are simple: Ileana Macalinao and husband Danilo Macalinao were successfully sued by BPI in the Makati Metropolitan Trial Court, after the couple defaulted from credit card payments on their accumulated P95,000 purchases beginning January 2004.

While the Macalinaos lost as expected, the couple nevertheless brought all the way to the Supreme Court the issue of how much penalty BPI Mastercard may impose on their credit card delinquency.

The high court’s Third Division answer—1-percent interest rate per month and another 1-percent penalty charge, also to be slapped monthly.

The effective 2-percent interest rate a month decreed by the high tribunal was considerably less than the 6 percent a month—3-percent interest plus another 3 percent in penalty fee—or a whopping 72 percent a year that was stipulated by BPI in the credit card’s contract of adhesion.

“While Central Bank Circular No. 905-82, which took effect on Jan. 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity, nothing in the said circular could possibly be read as granting carte blanche authority to lenders to raise interest rates to levels which would either enslave their borrowers or lead to a hemorrhaging of their assets,” wrote the ponente, Associate Justice Presbitero Velasco Jr., quoting a previous ruling.

“Since the stipulation on the interest rate is void, it is as if there was no express contract thereon. Hence, courts may reduce the interest rate as reason and equity demand.” –Victor C. Agustin, Manila Standard Today