Bangko Sentral extends 24% cap on credit card rates

The central bank has extended the cap on credit card charges that it imposed late last year, saying the policy of cheaper consumer debt would help consumers weather the economic fallout from the coronavirus pandemic.

In an online briefing ahead of the weekend, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the policy-making Monetary Board recently decided to maintain interest rate ceilings on credit card transactions that it first approved in September last year.

As such, the central bank chief explained that the maximum interest rate or finance charge on the unpaid outstanding credit card balance of a cardholder would remain at 2 percent a month or 24 percent a year.

Similarly, the monthly add-on rates that credit card issuers could charge on installment loans was retained at a maximum rate of 1 percent. Meanwhile, the maximum processing fee on the availment of credit card cash advances remained at P200 per transaction.

“The decision is based on a holistic assessment of developments in the macroeconomy, the state of credit card financing as well as the safety and soundness of banks and other credit card issuers,” Diokno said. “It will also continue to help ease the financial burden of consumers through affordable credit card pricing.”

The central bank chief said the retention of the existing ceiling was also in keeping with the current low interest rate environment.

The interest rate on the BSP’s overnight borrowing rate was recently maintained at its historic low of 2 percent.

According to the regulator, the latest credit card business activity data showed that the adoption of the ceilings on credit card transactions has not affected the availability of credit card financing to households.

Credit card applications and billings registered an increasing trend with the lifting of the community quarantine restrictions in June 2020. Similarly, credit card receivables continued to post double-digit growth of 13.5 percent year-on-year as of end-December 2020.

These positive outcomes were noted even when banks and other credit card issuers became more selective in their credit card approval process on account of the COVID-19 outbreak and its impact on paying capacity of financial consumers.

Diokno also noted that the credit card industry also “remains safe and sound.”

Based on results of a survey conducted by the BSP, banks and other credit card issuers were able to post a net income on their credit card business as of end-December 2020 from increased credit card usage and streamlined operations resulting in lower administrative costs.

Credit card companies also adopted a more prudent stance by increasing provisions for credit losses on credit card loan accounts in anticipation of a rise in nonperforming credit card obligations.

“The BSP will continue to closely monitor the impact of the ceilings on the state of credit card financing and sustainability of credit card operations of banks/credit card issuers, especially against the backdrop of the evolving COVID-19 pandemic,” Diokno said, adding that the regulator would undertake another review of the ceiling rates on credit card transactions after six months. INQ