Limit on credit card charges

WHEN a credit card user does not pay the entire amount shown in his monthly statement of account, he is bound to pay more for his purchases because of interest and penalty charges. When this happens, the credit card issuers are the big winners because they make more money on unpaid bills. The smaller the amount one amortizes of his monthly balance, the bigger the collections because collectibles increase because of uncontrolled impositions.

Those were the happier days for credit card issuers.

As early as last year, the Supreme Court (SC) has put an end to the regime of high interest and penalty charges that the good, old days may be over for credit card companies. By reiterating an old ruling many years ago, it is hoped that the High Court has finally stopped credit card companies from billing customers more than 2 percent in combined monthly interest and penalty charges.

One can learn much from the SC’s decision, because it provides the public with a formula on the computation of interest and penalty charges, which should not exceed 2 percent per month, or 24 percent a year. Of course, even these rates were considered usurious when a law set the maximum interest rate at 6 percent per annum. Charges as much as 3 percent, and even more perhaps in some instances—interest and penalty charges for late payment—should be a thing of the past because of GR  175490, a High Court ruling which every credit card holder should read before engaging in a shopping spree.

The case began sometime in 2004 at the Metropolitan Trial Court in Makati City and reached the High Tribunal where Ileana DR. Macalinao fought a suit filed against her and her husband by the Bank of Philippine Islands (BPI). To her, it was a five-year fight that took her from Metropolitan Trial Court to the Regional Trial Court of Makati City and to the Court of Appeals which ruled in BPI’s favor. Unluckily, her husband, who was with her infighting BPI’s suit died and did not see the fruits of their court victory. She was alone in elevating the case before the High Court where she won, but only a victory on reduced charges but lost in her petition for the dismissal of BPI’s case against her.

Though a loser too in the cost of the suits and the time she had spent in her court battle, hers was also victory for credit card holders because the High Court has ruled as too excessive charges of 3-percent interest and additional 3-percent penalty charges monthly—which may even be higher in some instances—banks imposed on consumers for unpaid amounts due at end of the month. In ruling against BPI, which “originally imposed the interest and penalty charges at the rate of 9.29 percent per month or 111 percent per annum,” the High Court set the amount of interest and penalty charges combined at not more than 2 percent a month.

In coming out with its own computation, the High Court accompanied this with a table, which had an extra column for ‘Balance,’ which came after ‘Statement Date’, ‘Previous Balance,’ and ‘Purchases or (Payments). Following ‘Previous balance’ were ‘Interest (1 percent),’ ‘Penalty charge (1 percent)’ and total amount due. On the other hand, BPI, which issues Mastercard, had only six columns because it did not have one for “balance” after payments or additional purchases. Instead, it had “balance due” due as the heading of last column of its own table.

Anyway, the Supreme Court’s computation based on 1-percent interest and 1-percent penalty charges per month showed Macalinao owed BPI a balance of only P112,309.52 as of January 27, 2004 and not P154,608.78 as computed by BPI. The SC’s final amount included an ending balance of P83,515; accumulated interest of P14,397.26; and penalty charges of P14,397.26. The total was based on billings from October 27, 2002 to January 27, 2004, factoring at the same time the amounts paid and additional purchases. On the other hand, during the same period, BPI billed Macalinao on January 27, 2004 a total of P154,608.78, divided into previous balance of P141,518.34; interest of P8,491.10; and finance charge of P4,599.34.

Comparing the two computations, it appeared the High Court favored Macalinao with a saving of P42,299.26.  But not necessarily because the SC also ordered her to pay P10,000 in attorney’s fees and to shoulder the cost of suit, the amount of which was not specified in the order the High Court issued on September 17, 2009.

By going over the decision, one learns how a credit card issuer computes interest and penalty charges. For example, the court’s records showed BPI Mastercard charged Macalinao a total of P63,548.67—broken down as: P15,682.31 in penalty charges and P47,866.36 in interest from October 27, 2002 to January 27, 2004. Based on 2-percent interest and penalty charges for nonpayment, the High Court came out with total penalty of only P28,794.52. The credit card bill, which was dated October 27, 2002, listed P94,843.70 in previous balance; penalty interest of P559.72, or 0.59 percent of balance, and P3,061.99, or 3.621 percent, in finance charges. Including 4.211-percent interest and penalty charges, she had to pay a total of P98,456.41.

By January 27, 2004, Macalinao’s balance ballooned from P94,843.70 to P154,608.78—or P141,518.34 in previous balance; P8,491.10 in penalty interest; and P4,599.34 in finance charges. These additional burdens were equivalent to 9.76 percent of previous balance of P141,518.34 because she has not been timely and up-to-date in paying her bills. The record showed that from 2002 to 2004, she paid P15,000 on November 27, 2002; P18,000 on March 27, 2003, P10,000 on May 27, 2003; and P7,000 on June 29, 2003. At the same time, she made additional purchases of P30,308.80 on December 31, 2002 and P8,362.50 on June 29, 2003.

Apparently, credit card companies impose additional charges on unpaid interest and penalties. The SC banned such impositions as show by its computation. From July 7, 2003, the High Court listed the interest due Macalinao’s balance of P83,515 at P835.15, which was equivalent to 0.982 percent. This balance of P83,515. remained the same until January 27, 2004. It also computed only the basic penalty of  P835.15 per month during the six-month period. In short, as far as the SC was concerned, credit card issuers should not add additional monthly charges on interest and penalties that remain unpaid

In its ruling, the High Court reduced the amount of P126,700.70 the Appellate Court ordered Macalinao to pay to P112,309.52 ‘plus interest and penalty charges of 2 percent per month from January 5, 2004 until fully paid.” This is a huge reduction of 27.359 percent from BPI’s computation of P154,608.78. It upheld the CA in ordering Macalinao to pay P10,000 in attorney’s fees and cost of the suit. –Emeterio Sd. Perez / By The Rule, Businessmirror