‘Letter of Credit’ on interest rates

Pardon the pun, but the title of this column actually stems from an E-mail I received from a good friend, who works at the Bangko Sentral ng Pilipinas. No, no, it’s not a reaction to my column yesterday about the BSP and the Monetary Board’s penchant for importing banknotes despite the presence of the Security Printing Complex in Quezon City.

The E-mail pertains to two articles I wrote regarding a ruling by Supreme Court Associate Justice Presbiterio Velasco that “banks and lending institutions, including those issuing credit cards, cannot and should not charge more than 2 percent monthly or 24 percent annually, for interest.”

The last phrase in quotation— written in the same way it appeared in my July 16 column—apparently merits clarification. Moreover, since I called the BSP incompetent for not being able to implement this ruling, its side deserves to be aired in the interest of fair play.

Unfortunately, my friend from the BSP asked me not to disclose his name and designation since he is not officially authorized to speak in behalf of the institution (which is perfectly understandable, considering the way government bureaucracy works). But I have known this fellow for a long time, and I am aware of the ethics and integrity by which he approaches his work. As such, I am reprinting his letter in full:

“We always find your commentary and opinions interesting and valuable, and the online link to your column is often forwarded among friends. Not surprisingly, I was especially interested when you brought up the Macalinao versus BPI case again as an introduction to your discussion on credit card interest rates.

“First, I wanted to point out that the ruling penned by Associate Justice Velasco applies to this particular case alone, taking into consideration its unique set of circumstances and the specific conditions under which the decision was made. In other words, it would be an unfair generalization to say that this ruling covers all ‘banks and lending institutions, including those issuing credit cards.’

One case cannot be taken as a general rule, especially in the light of the countless situations and factors that may differ.

“Simply put, the Supreme Court did not direct BPI to lower the interest and penalty rates for all its customers, and it certainly did not direct all credit card companies to lower their interest and penalty rates as a whole. The Supreme Court directed BPI to lower its interest and penalty rates only in this individual case, based on the merits argued by Ms. Macalinao. In fact, citing the decision itself, this point is well summarized: ‘In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of each case, since what maybe iniquitous and unconscionable in one may be totally just and equitable in another.’

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“Having said that, my friend, I assure you that the BSP is not ‘in cahoots with credit cards companies to abuse consumers and the public’ after all on this particular case. As you pointed out, having a credit card is extremely useful in most cases, and if you pay your bills on time there will be absolutely no problems.

“The lessons that are second nature to members of our generation are unfortunately lost to many, if you spend within your means, budget expenses, and commit to a disciplined payment plan, a credit card will actually prove to be your best ally. As in the case of any tool, how you use a credit card ultimately decides its function.”

What my friend is saying is that an across-the-board directive to lower the interest and penalty rates of credit cards cannot be implied from the Velasco decision simply because the Supreme Court does not have the power to fix interest rates. My gulay, if it did, this would amount to judicial legislation, which is prohibited under the Constitution because of the principle of separation of powers. Under existing jurisprudence and law, the most the High Court can do is to equitably reduce the interest and penalty rates on a case-to-case basis, if the circumstances were identical or highly similar to the Macalinao case. Fair enough.

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That letter, Santa Banana, was food for thought indeed! In my reply, I told my friend that we could discuss this further over good food and a bottle of Chez Samantha white wine (his drink of choice). And only because his points were well-raised and reasonably presented, I might just volunteer, an Ilocano like me, to pick up the tab—using my credit card, of course.

Having said that, perhaps because of his position at the BSP, he could ask credit card companies to take it easy on the public and not compound interest rates with penalties because of late payments and the failure of banks to deliver their billing statements on time.

I have been a victim of Citibank and BPI (I use Citi Visa and Mastercard Gold, and BPI Mastercard Gold) on compounded interest and penalty rates on many occasions through no fault of mine.

It is bad enough that we credit card users are hit by interest rates at 3.5 percent a month, but when compounded with penalties that also carry interests, it can amount to 42 percent annually. My gulay, that’s when I say that credit card use is a ripoff! It’s usurious! –Emil Jurado, Manila Standard Today