BAP will comply with BSP cap on credit card rates


The banking community reiterated Friday that as they were consulted by the Bangko Sentral ng Pilipinas (BSP) before putting a limit on credit card rates and fees, they are supporting this move to “ease the burden” of cardholders amid the public health crisis.

“We support this initiative by the (BSP). This will help ease the burden of every household including businesses severely affected by the pandemic,” said Bankers Association of the Philippines (BAP) managing director Benjamin Castillo.

The BAP in a statement said they also “recognizes” the “importance of the credit card policy reform during this critically difficult period.”

“The BAP appreciates the continuing collaboration between the industry and the regulator as we continue to fight the ill-effects of the COVID-19 health crisis,” the group, which has as members the country’s biggest banks, said.

BAP also commended the central bank for its action. “The BSP has been decisive and aggressive in their response to ensure a healthy and strong banking industry through its policy rate and reserve requirement reductions,” it said. 

BSP Governor Benjamin E. Diokno on Thursday announced that the Monetary Board which he chairs, has approved a cap on credit card rates and fees beginning on November 3 to allow credit cardholders a more affordable pricing terms. The ceiling will be reviewed every six months.

The BSP will set an annual interest rate ceiling of 24 percent on all credit card transactions which means that interest rates or finance charges on the unpaid outstanding credit card balance of a cardholder will only be two percent per month.

Based on BSP data, the average annualized interest rate on credit card receivables range from 18 percent to 58 percent from January to June 2020. And, based on the credit card business activity report, the average annualized interest rate for all types of cardholders both for premium and non-premium as of June 2020 was around 26 percent.

The setting of the ceiling is part of BSP’s supervisory authority over all credit card issuers under the Credit Card Industry Regulation Law. 

“It also promotes responsible credit card lending in the country,” said Diokno during his regular “GBED Talks” online, adding that “amid the rising use of electronic platforms for payments, the issuance (of the circular) will enable credit cardholders to settle financial transactions under more affordable pricing terms.”

“The imposition 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,” said Diokno.

The Monetary Board has reduced key overnight rates by a total 175 basis points since February, bringing down the policy rate to its record low of 2.25 percent.

The BSP will be monitoring banks’ credit card interest rates after the November 3 effectivity date. Officials said they are confident that the banking community will comply or observe the imposition of the limit on credit card rates and fees.

As of end-July this year, credit card receivables or loans amounted to P409.069 billion, up 27.4 percent from same time in 2019 of P321.055 billion, based on BSP data.

Diokno said the interest rate cap will “ease the financial burden of consumers and micro, small and medium enterprises amid a difficult economic environment caused by the COVID-19 pandemic.”

On the cardholder’s unpaid outstanding credit card balance, the BSP chief said this covers the outstanding balance from retail purchases, in the case of revolvers, or from cash advances. “No other charge may be imposed by credit card companies on cash advances except for a maximum processing fee of P200 per transaction.”

Diokno also said that loan-type transactions, or availments paid on installment, are subject to a separate interest rate ceiling. “For loan-type transactions, credit card issuers may only impose monthly add-on rates up to a maximum of one percent. The add-on rate is essentially the monthly interest charged by the credit card issuer on the installment loan,” he said.