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BSP’s cap on credit card rates incentivizes prudent use by cardholders


The Bangko Sentral ng Pilipinas’ recent decision to maintain the two percent cap or 24 percent per year ceiling on credit card interest rates and charges is beneficial to cardholders who are still coping with the harsh economic impact of the past two years’ battle with the coronavirus pandemic.

The deep recession that afflicted the economy impaired the public’s purchasing power considerably as reduced income had to be budgeted and prioritized. While the use of credit cards provided convenience and facilitated transactions especially during the enforcement of highly restrictive quarantine measures, cardholders still needed to exercise discipline to ensure that they lived within their means.

The Monetary Board has approved to maintain the ceilings on credit card transactions under Circular No. 1098 which was first released on Sept. 24, 2020, and implemented in November of the same year. BSP Governor Benjamin Diokno, who has been designated as the incoming Secretary of Finance, said that aside from “easing the consumers’ burden through affordable credit card pricing,” the move would also “allow the BSP to assess the impact of the improvement in macroeconomic fundamentals and easing of mobility restrictions on the performance of the credit card industry.”

Before the imposition of the ceiling in November 2020, the average maximum rate that banks are charging credit cardholders was 36 percent per year while credit card cash advances were charged starting at ₱500.

The BSP circular also stipulates a maximum one percent monthly add-on rate to installment loans and maintains at ₱200 per transaction the maximum processing fee on credit card cash advances. Observably, the use of credit cards has been moderated by the availability of other consumer trade facilities such as online cash transfers. The BSP noted that the number of credit cards issued and outstanding rose by a small 0.3 percent to 10.3 million.

Credit card loans and purchases still grew by 11.5 percent to ₱446.16 billion from ₱400.34 billion in the same period in 2021. Proof of the robust state of credit card use is shown by the 33.9 percent year-on-year increase in monthly card billings to ₱100.6 billion as of end-December 2021. Banks and credit card issuers maintained asset quality by posting a lower 6.8 percent non-performing loan ratio in 2021 compared to 8.9 percent in 2020. This was achieved “through intensified remediation and workout arrangements,” said the BSP.

Moderate regulations have prodded banks and their credit card issuer-partners to offer enhanced features and benefits. Expenses that require bank deposit payments such as rent, business suppliers, tuition fees, and professional service fees could now be paid conveniently by using credit cards.

Moreover, liberalized payment features are often offered interest free, thereby giving credit cardholders more elbow room and encouraging them to avail themselves of digitally mediated transactions.

With the further easing of travel restrictions, footloose cardholders would also likely avail themselves of attractive tourist holiday packages and out-of-home family gatherings in hotels and restaurants.

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