Swipe right: Know the credit card law

By Stacy G. Quinsay, Businessworld, August 18, 2016

In less than two weeks, the so-called “ber” months will begin. This marks the unofficial start of the Christmas season for Filipinos. It is when people crowd the malls to take advantage of various promos, such as zero-interest and deferred-payment schemes. More often than not, they also go overboard on spending, resulting in broken budgets. The temptation to swipe is all around, but do we really know what to do when our credit card statements reflect unexpected charges or when we are victimized by credit card fraud or scams?

Twenty-nine bills passed under the 16th Congress lapsed into law without the signature of former President Benigno S. C. Aquino III. Among those was Republic Act No. 10870 (RA 10870), or the Philippine Credit Card Industry Regulation Law, which became effective on Aug. 16.

Prior to RA 10870, no specific law governed credit card issuers, acquirers and their transactions. Credit card companies that are affiliates or subsidiaries of banks were under the regulation of the Bangko Sentral ng Pilipinas (BSP), and were bound by the rules and regulations set by the BSP. Meanwhile, standalone credit card companies were under the supervision of the Securities and Exchange Commission, and were governed by scattered provisions found in existing laws such as the Access Devices Regulation Act (RA 8484) and the Consumer Protection Act (RA 7394).

With the passage of RA 10870, there is now a definite law governing all credit card companies in the Philippines. All credit card issuers and acquirers in the Philippines are now under the supervision of the BSP. The BSP has also been given the power to issue rules of conduct and standards of operation, to determine the reasonableness of the fees and charges imposed by credit card companies, and to exercise oversight functions such as conducting examinations to ensure that the laws and regulations are complied with and imposing appropriate penalties for non-compliance.

RA 10870 is not only aimed at fostering the development of the credit card industry but more importantly, the protection of credit cardholders against unfair practices, credit card fraud and scams. Under the new law, the following mechanisms, among others, are now in place:

• Due diligence to ascertain identity of cardholders. Credit card issuers and their partner-merchants are mandated to include a provision in their service level agreement that requires the merchants to perform due diligence to ascertain the identity of cardholders. This addresses the use of stolen cards where an impostor pretends to be the cardholder to obtain goods and services. Under the new law, merchants shall strictly require cardholders to present an ID and verify the signature prior to consummating the sale transaction;

• Increase in credit card limit. While credit card issuers may implement changes in the credit card limit based on their risk management policies and guidelines, cardholders shall be notified and shall have the option to decline any increase in their credit card limit;

• Disclosure of information. Important information must be disclosed to cardholders, such as finance charges, percentage of interest, penalty fees and similar delinquency related charges; method of determining the balance, interest, or delinquency charges and other fees (i.e., membership, renewal, processing, over-the-limit fees, collection fees, credit investigation fees); and the manner of conversion from the transaction currency and payment currency in case of foreign currency transactions, and any other information which the BSP may deem necessary. The credit card issuer shall also remind the cardholder that payment of only the minimum amount due, or any amount less than the total amount due for the billing cycle/billing period, would entail the imposition of interest and other charges. The cardholders shall also be apprised of the detailed explanation and clear illustration of the manner by which all charges and fees are computed. With this, cardholders will be adequately informed of the charges they have to pay and afforded transparency for them to check the fees imposed on them;

• Confidentiality of the data of the cardholders. Credit card issuers, their officers, employees, and agents shall keep the data of the cardholders in strict confidence. This will minimize information and identity theft. The law enumerates only six exceptions where confidential data of the cardholders may be divulged, e.g., upon express consent of the cardholder; upon orders of a court or any government office or agency authorized by law, or under such conditions as may be prescribed by the Monetary Board of the BSP; for the purpose of investigating fraud or unauthorized activities or mitigating risk involving card issuance, etc.;

• Appropriate manner of collection. Credit card issuers may resort to all reasonable and legally permissible means to collect amounts due them and shall not harass, abuse, or oppress any person or engage in unfair practices in connection with the collection of any credit card debt; and

• Imposition of administrative sanctions on credit card issuers and penalty for violation of the Act. In addition to the administrative sanctions that may be imposed on credit card issuers for any violation under the new law, their authority to issue credit cards may be suspended or cancelled by the BSP. A person who willfully violates any provision of RA 10870 or any related rules, regulations, order or instructions, issued by the Monetary Board shall be punished by imprisonment of two to 10 years, or by a fine of P50,000 to P200,000, or both, at the discretion of the court.

With these measures in place, credit cardholders can now be spared from the shock they get from “hidden charges” and will be more guarded against unscrupulous acts of credit card issuers. Complaints for violations of RA 10780 and other related rules may be reported to the BSP.

Considering that RA 10870 lapsed into law only last July 17, its Implementing Rules and Regulations have yet to be issued. It is hoped that the same will be comprehensive enough to touch every aspect of credit card transactions and to address the usual issues of the consumers.

The views or opinions in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from the article.

Stacy G. Quinsay is a Senior Consultant at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.

stacy.g.quinsay@ph.pwc.com