The Bangko Sentral ng Pilipinas (BSP) is reviewing the proposal to increase from two percent to three percent the monthly maximum interest rate or finance charge on unpaid credit card balances.
BSP Governor Felipe M. Medalla said they prefer to gradually raise the ceilings on credit card transactions rather than removing it in an abrupt manner.
“(The proposal) is to raise the ceiling to three percent,” he said.
Medalla has always been vocal about his personal opinion on adjusting the ceilings because benchmark interest rates have gone up by 350 basis points (bps) since May 19 until Dec. 15, 2022.
The temporary policy that allowed credit cardholders to pay no higher than two percent interest rate per month or 24 percent per year is one of BSP’s pandemic relief measures. It was first implemented in November 2020 under Circular No. 1098. At the time, the BSP policy rate was still a flat two percent.
The proposed three percent monthly cap or 36 percent per year means cardholders will be paying higher credit card payments. Before the imposition of the ceilings in 2020, the average maximum rate that banks are charging credit cardholders was already 36 percent per year.
The BSP on Nov. 15 decided to keep the two percent monthly cap on credit card rates until end-January 2023 because they deemed it still fair to allow cardholders some relief despite rising interest rates. Currently, the BSP policy rate is at 5.5 percent. The BSP is expected to raise the policy rate anew in February and March, which will bring the key rate above six percent.
Last year, the BSP deferred any adjustment in the ceilings because it was still closely monitoring “evolving domestic and external developments that will impact the state of credit card financing, sustainability of credit card operations and viability of banks/credit card issuers.”
Consumer groups and some politicians have also appealed for BSP’s extension of the relief measure since majority of Filipinos are still struggling from the adverse effects of the pandemic.
The BSP’s decision to continue implementing the ceilings on credit card transactions will help ease the financial burden of consumers through affordable credit card pricing.
Besides the ceiling on credit card rates and charges, the November 2020 circular also imposes a limit on the monthly add-on rates that credit card issuers can charge on installment loans, which is a maximum rate of one percent.
The maximum processing fee on the availment of credit card cash advances, meantime, is P200 per transaction. Before the pandemic, credit card cash advances are charged P500 per transaction.
As of end-November 2022, credit card loans were up 26.5 percent year-on-year to P539.25 billion from P426.22 billion in 2021, based on BSP data.
To ensure affordable credit card pricing, the BSP reviews credit card rates and fees every six months.