CCAP: Current credit card rate cap sufficient

MANILA, Philippines — The Credit Card Association of the Philippines (CCAP) said it fully supports the assessment process of the Bangko Sentral ng Pilipinas (BSP) in adjusting or keeping the cap on credit card charges, adding that the current ceiling is sufficient.

Alex Ilagan, executive director at CCAP, told The STAR that a balanced approach that considers both the welfare of consumers and the sustainability of credit card issuers is needed in deciding to adjust, keep or remove the credit card cap.

“The current limits are helpful in transitioning the credit card industry to how it is today, and especially coming from the pandemic. We fully support the BSP’s assessment process in its determination of whether to retain, increase or decrease credit card caps,” Ilagan said.

The BSP, which reviews the interest rate ceilings on credit card transactions every six months, is currently reviewing whether to keep or hike the three percent interest rate cap on credit card transactions.

In August last year, the central bank kept the maximum interest rate on unpaid outstanding card balance of a cardholder at three percent per month or 36 percent a year.

Meanwhile, the existing ceiling on the monthly add-on rate that credit card issuers can charge on installment loans is at one percent. The maximum processing fee on the availment of credit card cash advances is also at P200 for each transaction.

The move followed the earlier decision of the central bank in January last year, wherein the Monetary Board hiked the credit card cap by 100 basis points from two percent previously.

Ilagan emphasized that the central bank has been very supportive and proactive in assessing the state of the credit card industry.

He noted that the BSP’s review would be based on macroeconomic developments, the state of credit card financing, the soundness of banks and credit card issuers as well as consumer concerns and supervisory findings.

However, a very restricted pricing regime may lead to tighter credit access for the lower-end or higher-risk segment of the market.

“Banks tend to be overly conservative in granting credit in order to mitigate credit risk due to smaller margins,” Ilagan said.

“As a result, the less qualified financial consumer is deprived of credit and is forced to resort to the unregulated lending black market with usurious rates. They end up suffering more instead of benefiting from the lower credit card interest rates,” he added.

Based on central bank data, credit card receivables (CCR) of the banking system reached P722.6 billion as of end-December 2023, 30.1 percent higher from a year ago.

“The rise in CCRs could indicate firm demand for this revolving credit as a funding source to support household expenditure and as a payment instrument to merchants,” the BSP said in its fourth-quarter report on economic and financial developments.

Credit card loans also surged by 30 percent to P728.97 billion in January from P560.38 billion a year ago. This translated to a 25.2-percent increase in consumer loans to P1.29 trillion despite the high interest rate environment.