The Bangko Sentral ng Pilipinas (BSP) will review the interest rate ceiling on credit card transactions every six months to monitor and assess if cardholders are coping with the increased payments on their credit card balances.
The BSP’s Monetary Board on Jan. 13 approved to raise the credit card rate cap to three percent per month from two percent, or 36 percent per year from 24 percent. This will impact on consumers especially micro, small and medium enterprises that were the focus of the two percent cap that was first implemented in November 2020. The setting of the ceiling is part of BSP’s supervisory authority over all credit card issuers under the Credit Card Industry Regulation Law.
In a statement late Friday, Jan. 20, BSP Governor Felipe M. Medalla said the decision to increase the cap “aligns the credit card interest rate ceiling with developments in the macroeconomy” and the adjustment “cushions the impact of inflationary pressure on banks’/credit card issuers’ ability to provide quality credit card services to their clients.”
“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,” said Medalla.
The three percent ceiling on credit card transactions takes effect as soon as the circular is published. “It will remain in effect unless revised by the BSP,” said the BSP, adding that it will continue to monitor the domestic and external developments “that may have an impact on consumers and the credit card industry, following a six-month review period.”
Meanwhile, the Monetary Board has approved to keep the existing maximum rate of one percent on the monthly add-on rate that credit card issuers can charge on installment loans. The maximum processing fee on the availment of credit card cash advances is still P200 per transaction as well.
The ceilings on credit card transactions are temporary relief measures. It was given for cardholders’ reprieve during the pandemic and to allow them affordable access to credit.
However in 2022, with rising global interest rates that forced the BSP to raise its own benchmark rate by a total 350 basis points (bps), bringing the policy rate from a flat two percent in November 2020 to 5.5 percent by end-2022, the Monetary Board thought it prudent to review the ceiling in view of the higher rates.
“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. It will help banks/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,” said the BSP.
“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,” the BSP added.