Higher 3% cap on credit card transactions starts next month

MANILA, Philippines — Aside from soaring prices of basic commodities, Filipino consumers are set to face another burden after the Bangko Sentral ng Pilipinas (BSP) raised the interest rate cap on credit card transactions starting next month.

BSP Governor Felipe Medalla said the central bank’s Monetary Board issued Resolution No. 55 last Jan. 13 raising the maximum interest rate or finance charge imposed on a cardholder’s unpaid outstanding credit card balance by 100 basis points to three percent from two percent per month or 36 percent per annum.

Medalla said the existing ceiling on the monthly add-on rate that credit card issuers can charge on installment loans was maintained at a maximum rate of one percent.

Similarly, Medalla said the maximum processing fee on the availment of credit card cash advances remained at P200 per transaction.

“The policy aligns the credit card interest rate ceiling with developments in the macroeconomy and cushions the impact of inflationary pressure on banks’ and credit card issuers’ ability to provide quality credit card services to their clients,” Medalla said in a statement.

The BSP chief issued Circular 1165 wherein the higher ceiling on credit card transactions would take effect 15 days after publication either in the official gazette or in any newspaper.

Medalla said the maximum processing fee and interest rates or finance charges would be subject to review by the BSP every six months.

The BSP imposed a cap on all credit card transactions as a temporary relief measure to ease the financial burden of consumers from the COVID-19 pandemic and promote affordable access to credit.

In fixing the caps, the BSP considered the prevailing low interest rate environment during the pandemic.

According to the central bank, the adjustment in the interest rate ceiling considers the upward trend in domestic interest rates on account of high inflation and BSP’s efforts to counter the same through successive policy rate hikes.

Last year, the BSP Monetary Board raised key policy rates by 350 basis points that brought the benchmark interest rate to a 14-year high of 5.5 percent from an all-time low of two percent.

Medalla said the higher cap would help banks and credit card issuers cover higher costs related to the efficient handling of consumer transactions, including prompt and timely dispute resolution, as well as the retention of competent personnel.

“It will also make funding available for long-term investments that will institutionalize process improvements, strengthen cybersecurity and information technology systems, and nurture innovation in these financial institutions that will lead to better customer experience,” Medalla said.

He explained that Republic Act 10870 or the Philippine Credit Card Industry Regulation Law which allows the regulator to adjust interest rate ceiling for revolving purchases is in keeping with the BSP’s mandate to determine the reasonableness of credit card fees and charges.

According to Medalla, the decision is also consistent with the BSP’s objective of keeping credit card pricing affordable without jeopardizing the long-term viability of the credit card operations of banks/credit card issuers.

“The BSP will continue to implement complementary measures that will give consumers access to financial products at lower cost such as the provision of an enabling framework that will foster a level playing field for new market entrants, promote prudent digital innovation, enable responsible access to credit information, and uphold rights of financial consumers,” he said.

With the further reopening of the economy, latest data from the BSP showed credit card loans jumped by 26.5 percent to P539.25 billion in end-November last year.

This translated to a 24.1 percent increase in consumer loans to P1.01 trillion despite the slower 13.7 percent overall credit growth to P10.64 trillion in end-November last year.