While consumers with credit card balances from the pandemic spending are worried about paying more, credit card issuers are apparently relieved that the Bangko Sentral ng Pilipinas (BSP) has increased the monthly interest rate ceiling by 100 basis points (bps) to three percent from two percent or a yearly rate of 36 percent.

"The Credit Card Association of the Philippines (CCAP) welcomes the decision of the Monetary Board, the policy-making body of the (BSP), to raise the monthly interest rate ceiling on credit cards to 3% from the 2% imposed in November 2020,” the group said in their statement on Monday, Jan. 23, exactly 10 days after the BSP increased the interest rate cap.

CCAP believes the recent Monetary Board decision to ease the monthly interest rate cap on credit cards is part of the BSP's calibrated responses to the present economic situation.

“CCAP backs the BSP in pursuing various options using monetary tools to help many Filipinos, particularly the micro, small and medium enterprises, cope with rising consumer prices; boost consumption and tourism; and ultimately aid in the country’s economic recovery,” it said.

“With the pandemic spurring the rapid adoption of consumers of new virtual payment technologies, credit cards serve as an effective, safe and convenient payment tool that drives and contributes to the overall digitization goal of the country. Market-driven rates will help, not only in boosting competition in the industry, but in accelerating financial inclusion and creating a cashless society — which are aligned with the BSP’s goals,” it added.

CCAP has 17 regular members such as BDO Unibank Inc., Metropolitan Bank and Trust Co., Bank of the Philippine Islands, Philippine National Bank, Security Bank Corp., Union Bank Corp., EastWest Bank Corp., Asia United Bank, Bank of Commerce, China Banking Corp., Rizal Commercial Banking Corp., Robinsons Bank, Equicom Savings Bank, HSBC, Home Credit, Maybank, and state-owned Land Bank of the Philippines.

The BSP issued Circular No. 1165 or “Amendments to the Ceiling on Interest or Finance Charges for Credit Card Receivables” on Monday. It was signed by BSP Governor Felipe M. Medalla on Jan. 19. It will take effect next month.

The central bank will however review the 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.

Medalla said late Friday that 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.”

Medalla assured the public and especially cardholders that complementary measures will be implemented for consumers’ continued access to financial products “at lower cost”.

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.”

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.

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.

But in 2022, with rising global interest rates that forced the BSP to raise its own benchmark rate by a total 350 bps, bringing the policy rate from a flat two percent in November 2020 to 5.5 percent by end-2022, the Monetary Board had to review the ceiling in view of the higher rates.

The Monetary Board on September 2020 first approved the ceiling on credit card rate based on the prevailing low BSP rate at the time of two percent.

BSP data however showed that the average annualized interest rate on credit card receivables ranged from 18 percent to 58 percent from January to June in 2020.

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. This was the reason why the BSP capped the charges and fees to ease the financial burden of consumers, especially micro, small and medium enterprises.

The two percent cap on credit card rate and transactions was first implemented on 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.