CCAP replies to our editorial ‘Credit Cards vs. Consumers’

This is about your December 7 editorial “Credit Cards vs. Consumers.”

While consumer feedback is always appreciated, we at the Credit Card Association of the Philippines (CCAP) believe a few misconceptions regarding bank interest rates need to be cleared up. First, many people forget that there is no interest charged if your credit card bill is paid in full and on time.
The cardholder enjoys an interest free transaction for purchases of goods and services charged against the credit card. No interest is collected from the cardholder for an average of 21 to 51 days before the cardholder should pay the full amount on due date as reflected in the statement of account. Interest rates are only collected if a cardholder does not zero out his or her balance in full on due date. By using your credit card, the bank is effectively granting cardholders an interest-free loan.

There are also other choices available to cardholders when purchasing goods and services which are considered high-ticket items, i.e. appliances, hospital bills, tuition, insurance, etc.

(1) These are payable in installment at low or oftentimes 0 percent interest rate where a fixed monthly amortization payment is made known to the cardholder. (2) These straight charged transactions can also be converted to monthly amortization payment that gives the cardholder the opportunity to budget this expense every month. (3) The balance conversion facility is another choice that allows cardholders to transfer their balances at very low rates, ranging from 0.60 percent to 0.99 percent. This facility is also a fixed monthly payment that can be budgeted by the cardholder.

There is also the fact that the choice of which bank to do business with lies solely with the consumer. It is advisable to canvass and settle on the card company that offers terms and interest rates that suit one’s needs and ability to pay. There are, in CCAP, twelve established and reputable member-institutions that consumers can contact regarding credit card plans and policies.

As one of CCAP’s purposes is to educate consumers about responsible credit management, we urge cardholders to use their cards wisely.

It is also worth noting that if rate caps are placed on credit card interest as proposed by some legislators, then the consumer would be adversely affected as well. Availability of cards will be more limited and credit approvals more selective. As a result, a vital avenue for liquidity would be closed to many people. This will eventually lead to purely cash transactions for household maintenance and personal expenses which would in effect be more difficult to sustain than transacting with a credit card.

Consumers will be forced to go to the other informal creditors which charge exorbitant interest rate and are not supervised by any government financial institution.

With rate caps on interest, credit card limits would also be drastically decreased for many existing cardholders, thus restricting the standard of living to which cardholders have become accustomed.
Similarly, credit card rewards would also be significantly reduced, leaving cardholders to pay more than what they usually do for airfare, dining privileges, and so on.

In conclusion, responsible borrowing is the solution to issues and concerns about credit card interest rates.

As stated in the editorial, we live in a developing country with a high incidence of poverty. We cannot afford to staunch credit flow that will effectively cripple the economy. Cardholders are therefore called to manage their credit responsibly. On the other hand, issuers, in cooperation with CCAP, will continue to promote consumer education through radio tips, statement inserts and newsprints. This collaborative effort between the industry and the consumer will undoubtedly yield results for the benefit of all.

Elizabeth Legarda
Executive Director
Credit Card Association
of the Philippines