Credit card rates to show 42%, not 3.5%

THE interest rates on credit card transactions must reflect the lending companies’ true annual charges of more than 40 percent—and not make consumers believe the rates they are paying are low—the Bangko Sentral says in its new transparency rules.

Philippine Savings Bank president Pascual Garcia III, a former president of the Chamber of Thrift Banks, says credit card companies make it appear on their monthly billings that the interest rate on credit card purchases is only 3.5 percent, when in fact it is 3.5 percent a month or 42 percent a year.

But credit card companies will now have to disclose the true cost of their loans—apart from stopping charging flat interest rates—following the Monetary Board’s Resolution 1018 updating the implementing rules of the Truth in Lending Act.

The new rules take effect on July 1 next year.

The central bank says interest will only be charged on the outstanding balance at the beginning of an interest period.

“Current practices of some credit providers, particularly the use of so-called flat interest rates, show contractual rates for loans that substantially differ from the effective interest rate,” the Bangko Sentral says.

“There were also observations on hidden charges and deliberate quoting of lower interest rates with higher up-front charges to enhance loan product marketability. As a result, the public may be misinformed or misguided about the true cost of their borrowings.” Roderick T. dela Cruz, Manila Standard Today