BSP lukewarm on credit card interest cap

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) is lukewarm to the proposal of legislators to regulate the interest rates imposed by credit card companies as this could unduly weaken the credit transmission power of monetary policy.

BSP Governor Amando M. Tetangco Jr. said it is unlikely for the central bank to cap the interest rates being imposed by credit card companies on borrowers.

“We may be creating unintended consequences if we regulate interest rates on certain credit products and not on others. Determining what level is appropriate for one type versus another may create distortions that could unduly weaken the credit transmission power of monetary policy,” Tetangco warned.

He explained that the use of credit cards is a bilateral transaction between credit card companies and credit card holders.

“In other words, these are transactions that both parties have agreed to willingly. Unfortunately, some card users who have entered into such transactions may not have fully understood what the rates mean, the calculation procedure for charges, etc, in the fineprint or, worse, may not have been sufficiently informed,” he said.

Due to the absence of an extensive working credit information bureau, the BSP chief said credit card companies impose “fairly high” interest rates to recover potential losses from potentially bad creditors.

“In the absence of an extensive working credit information bureau to allow credit companies to more efficiently determine which is good and which is poor credit among borrowers, they resort to such a pricing scheme,” Tetangco said.

Senators Francis Escudero and Ramon Revilla Jr. as well as Trade Union Congress of the Philippines Rep. Raymond Mendoza have filed bills before the Senate and the House of Representatives seeking to regulate interest rates imposed by credit card companies and protect consumers from hidden charges.

Revilla’s Senate Bill 2492 seeks to amend R.A. 8484 which he said is an 11-year-old law that only regulates the issuance of credit cards while Escudero’s Senate Bill 166 puts a cap of one percent a month or 12 percent per annum on the interest rates that credit card companies could charge.

At present, legislators argued that credit card companies charge 2.5 percent to 3.5 percent a month or from 30 percent to 42 percent a year.

Legislators also want to provide more transparency on the part of credit card companies to ensure that the consumer is more aware of the scope of his debt/obligations.

Tetangco said the issue of “surprises” in credit card fees in statements could be addressed by tightened disclosure practices and improving consumer financial literacy through the BSP’s financial education program.

“We have recently beefed this up and energized this, and have brought this around the country. One could say this is of a medium-term perspective. In other words, its not a quick fix. But I believe a change in spending and consumption patterns in the public is necessary to engender a more lasting solution to the problem,” he added.

According to him, the enactment of the Credit Information System Act (CISA) under RA 9510 calling for the appointment of capable officials would help address the exorbitant rates being imposed the credit cards. –Lawrence Agcaoili (The Philippine Star)