Citing the difficult economic environment caused by the new coronavirus disease 2019 (COVID-19) pandemic, the Bangko Sentral ng Pilipinas (BSP) yesterday said it has approved the setting of interest rate ceiling on all credit card transactions.
Data from the BSP showed that as of the first six months of this year, credit card charges range between a low of 18 percent and as high as 58 percent annually.
To take effect on November 3 this year, the annual ceiling for credit card charges is now pegged at 24 percent.
This simply means interest rate charges for unpaid credit card purchases and cash advances should not exceed two percent per month.
Benjamin Diokno, BSP governor, said the interest rate cap on credit card receivables aims to ease the financial burden of consumers and micro, small and medium enterprises “amid a difficult economic environment caused by the COVID-19 pandemic.”
Diokno clarified that the new issuance prescribes a separate interest rate ceiling for credit card installment loans.
For these transactions, credit card issuers may only charge monthly add-on rates up to a maximum of one percent.
Also, no other charge or fee may be imposed or collected on credit card cash advances except for a maximum processing fee of P200 per transaction.
The add-on rate is essentially the monthly interest charged by the credit card issuer on the installment loan.
“These maximum rates and fees shall also take effect on November 3 and shall be subject to review by the BSP every six months,” Diokno stressed.
He explained that the reform initiative is pursuant to the BSP’s supervisory authority over all credit card issuers under the Credit Card Industry Regulation Law.
It is also seen to promote responsible credit card lending in the country.
“Amid the rising use of electronic platforms for payments, the issuance will enable credit cardholders to settle financial transactions under more affordable pricing terms,” Diokno said.
He also said the setting 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.
The interest rate on the BSP’s overnight reverse repurchase facility remains at 2.25 percent. This has been the lowest policy rate since the beginning of the pandemic.
The new regulation also waives the requirement for credit card issuers to notify the cardholder of the said changes on interest or finance charges at least 90 calendar days before such changes take effect.