BSP poised to adjust cap on credit card rates

Filipino cardholders will be paying higher credit card payments after the Bangko Sentral ng Pilipinas (BSP) decide this month how much they will raise or adjust the monthly ceiling on credit card rates and finance charges from the current cap of two percent per month or 12 percent annually.

The Monetary Board, the BSP’s policy-making arm, has received the recommendation from the Financial Supervision Sector (FSS) to raise the two percent monthly cap.

This was confirmed by BSP Governor Felipe M. Medalla to Manila Bulletin. “Recommendation is to increase the ceiling,” he said, referring to the FSS which is headed by BSP Deputy Governor Chuchi G. Fonacier.

Fonacier, meantime, said they will submit an updated report to the Monetary Board this month.

The resubmission of the previous recommendation of a new ceiling will be dependent on Medalla. All sectors involved in the BSP will wait for the BSP chief’s go-signal.

The temporary policy that allowed credit cardholders to pay no higher than two percent interest rate per month is one of BSP’s pandemic-related measures. It was first implemented in November 2020 under Circular No. 1098.

By Nov. 15, 2022, the BSP announced that it will keep the two percent monthly cap on credit card rates until end-January 2023 because it was still appropriate or fair to allow cardholders some relief despite rising interest rates. As of Dec. 15, the BSP has lifted the policy rate by a cumulative 350 basis points. The overnight benchmark borrowing rate is currently at 5.5 percent.

Last year, the BSP deferred any adjustment in the credit card rates’ ceiling 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 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. As for the maximum processing fee on the availment of credit card cash advances, this also remains at P200 per transaction.

The BSP in November said they still find “reasonableness” in maintaining the ceilings but this will be “subject to further review in January 2023.”

Credit card business activity based on monthly card applications, card billings and issued cards continued to improve in 2022.

Before the imposition of the ceilings in November 2020, the average maximum rate that banks are charging credit cardholders is 36 percent per year while credit card cash advances are charged from P500.