Banks cannot impose ‘excessive, exorbitant’ interests on debts of delinquent credit card holders

Published February 1, 2021, 6:59 AM

by Rey Panaligan 

          Banks cannot impose “excessive, iniquitous, unconscionable and exorbitant” interest rates on the debts incurred by delinquent credit card holders.


          Quoting from Supreme Court (SC) rulings, the Court of Appeals (CA) said that while the ceiling on interest rates has been effectively removed, lenders do not have the complete freedom “to raise interest rates to levels which would either enslave their borrowers or lead to a hemorrhaging of their assets.”

          The CA decision, released last January 25 and written by Associate Justice Ronaldo Roberto B. Martin, settled the appeal of Carmen B. Mendoza on the 2018 ruling issued by the Makati City regional trial court (RTC).

          Case records showed that Mendoza was issued a credit card by the Bank of the Philippine Islands (BPI). She undertook to pay all charges incurred within a period of 20 calendar days from her assigned cut-off date.

          BPI, on the other hand, gave Mendoza an option to pay the amount billed in full or only the minimum payment required in the statement of account.

The bank stipulated that should Mendoza decide to settle only the minimum payment required, a finance charge of 3.25 per cent based on the average balance will be added to the unpaid balance.

Also, should Mendoza fail to pay on the due date indicated in the statement of account, BPI said an additional late payment charge of six per cent for every month or a fraction of a month’s delay will be added to the unpaid balance.

BPI said that Mendoza had incurred an outstanding obligation of P590,161.32 as of June 24, 2014.

          It said that since her last payment was on Jan. 29, 2014, it demanded the payment of her debts but she failed and refused to settle her obligations.  

          It also said that because of Mendoza’s refusal, it hired a lawyer in 2015 to file a complaint for sum of money and that the lawyer asked for 25 per cent of the outstanding obligation by way of attorney’s fees on top of the appearance fee.

          BPI imposed a cumulative annual interest of 111 per cent plus 25 per cent of the amount due as attorney’s fees.

          At the Makati City RTC, the case encountered several proceedings on the plea for bill of particulars filed by Mendoza and BPI’s  amendment of the complaint that was granted by the trial court on Feb. 22, 2016.

          When Mendoza failed to file a responsive pleading despite summons and her requests for extensions, the RTC granted BPI’s motion to declare her in default in an order dated March 20, 2018.

          Mendoza sought a reconsideration of the default order but it was denied. BPI then presented its evidence.

          On July 19, 2018, the RTC handed down its decision which directed Mendoza to pay BPI P590,161.32 plus 12 per cent interest annually from Feb. 3, 2015 until fully paid and 25 per cent of all amounts due as attorney’s fees. 

          Mendoza elevated the case to the CA which ruled that the RTC was correct in accepting the amended complaint because it (amended complaint) was filed before her filing of a responsive pleading or answer to the complaint.

          It said the Rules of Court allow, as an absolute right, the amendment to the complaint before the filing of an answer by the respondent (Mendoza) “regardless of whether a new cause of action or change in theory is introduced.”

          “In this case, it is undisputed that Mendoza had not yet filed a responsive pleading at the time BPI’s complaint was amended. Thus,  BPI may amend its complaint as a matter of right as Mendoza had not yet filed an answer and that prior leave of court is unnecessary,” the CA said.

          It also said the RTC was correct in declaring Mendoza in default since she failed to file her answer despite summons.

          “Records also reveal that the RTC had, in fact, been lenient when Mendoza sought for extensions of time to file an answer,” it added.

          “Having failed to file an answer, the RTC correctly declared her in default and allowed BPI to present its evidence without Carmen taking part in the trial as a consequence of the declaration of default,” it stressed.

          However, the CA said that Mendoza’s “outstanding obligation, reckoning date of interest rate imposed by the RTC as well as amount of attorney’s fees should be modified.”

          It said that “the RTC failed to explain how it arrived on the amount of PhP590,161.32 and the 12 per cent interest it imposed on the said amount.”

          It pointed out that in Mendoza’s case, “BPI imposed a cumulative annual interest of 111 per cent plus 25 per cent of the amount due as attorney’s fees, which is obviously exorbitant.”

“Incorporated in the amount of P590,161.32 demanded by BPI were the higher rates of finance and late payment charges,” it said.

But based on the statement of account issued to Mendoza dated Feb. 24, 2014, “the principal amount indicated was P483,895.03.”

Thus, the CA said that based on previous SC rulings, “the finance and late payment charges to be imposed on the principal amount of P483,895.03 must be reduced to 12 per cent each per annum, reckoned from 24 February 2014, the date when Mendoza became initially remiss in the payment of her obligation to BPI, until full payment.”

“The attorney’s fees from 25 per cent to five percent of the total amount due from Mendoza must also be reduced” in line with the SC decision.

          Affirming with modification the RTC’s decision, the CA ruled:

          “Appellant Carmen B. Mendoza is ordered to pay the following: (1) the principal amount of P483,895.03 as indicated in the Statement of Account dated 24 February 2014; (2) finance and late payment charges of twelve per cent each per annum counted from 24 February 2014 until full payment; and (3) five percent of the total amount due as attorney’s fees.”