BSP to impose 24% credit card rate cap starting Nov. 3

by Daxim L. Lucas, Philippine Daily Inquirer, 24 Sep 2020

MANILA, Philippines — Credit card users will soon be required to pay no more than 2 percent a month — or 24 percent annually — on this type of debt after the central bank’s Monetary Board recently approved an interest rate cap.

In a press briefing, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said this rate ceiling on all credit card transactions will become effective on Nov. 3 this year.

The policy also provides that interest rates or finance charges on the unpaid outstanding credit card balance of a cardholder should not exceed two percent per month.

“The interest rate cap on credit card receivables aims to ease the financial burden of consumers and micro, small and medium enterprises amid a difficult economic environment caused by the COVID-19 pandemic,” he said.

According to central bank officials, a recent study showed that Filipino credit card users pay anywhere from a low of 18 percent to a high of 54 percent in finance charges for transactions made on these short term loan facilities.

The new issuance also prescribes a separate interest rate ceiling for credit card installment loans. For these transactions, credit card issuers may only charge monthly add-on rates up to a maximum of one percent.

Meanwhile, no other charge or fee may be imposed or collected on credit card cash advances except for a maximum processing fee of P200 per transaction.

These maximum rates and fees shall also take effect on Nov. 3 and shall be subject to review by the regulator every six months.

The reform initiative is pursuant to the BSP’s supervisory authority over all credit card issuers under the Credit Card Industry Regulation Law. It is also seen to promote responsible credit card lending in the country.

“Amid the rising use of electronic platforms for payments, the issuance will enable credit cardholders to settle financial transactions under more affordable pricing terms,” Diokno said.

The setting of a maximum ceiling on interest or finance charges on credit card transactions is also in keeping with the country’s current low interest rate environment.

The interest rate on the BSP’s overnight reverse repurchase facility — the basis for banks’ own loan price — remains at 2.25 percent. This has been the lowest policy rate since the beginning of the pandemic.

The new regulation also waives the requirement for credit card issuers to notify the cardholder of the said changes on interest or finance charges at least 90 calendar days before such changes take effect.

JE