Credit card companies are asking for the removal of the cap on their interest rates, citing shrinking revenues amid the continued policy rate hikes by the Bangko Sentral ng Pilipinas (BSP).
In an interview on dzMM on Saturday, Credit Card Association of the Philippines (CCAP) executive director Alex Ilagan said that funding costs have increased because of the recent rate hikes by the central bank.
“What is happening now is that the policy rates of BSP [are] increasing but the interest rate of credit cards is fixed at 2 percent,” Ilagan said.
“The small issuer and operators are the ones that will be hit by this because they have higher costs of operation per unit because of the small volume,” he added.
Back in Nov. 15, the BSP announced that it decided to maintain the limits on credit card transactions, citing the “reasonableness” of the prevailing fees for these financial services.
With this status quo, the maximum interest rate or finance charge for unpaid outstanding credit card balance is still 2 percent per month or 24 percent annually.
Add-on charges
The maximum add-on charge for installment loans is 1 percent per month, while the transaction fees for credit card cash advances is capped at P200 per transaction.
Two days later, the Monetary Board, the central bank’s seven-person policymaking body, announced a rate hike of 0.75 percentage point, bringing it to 5 percent which took effect starting Nov.18.
The policy rate hike by the BSP was aimed at cooling the country’s rising inflation rate.
Back in October, the Philippines’ consumer price index climbed 7.7 percent year-on-year, the fastest rise since December 2008, driven by price gains in key commodity groups, specifically food and nonalcoholic beverages.
The central bank said that inflation in November could be at the 7.4 percent to 8.2 percent range.
Meanwhile, Cynthia Sison, the director of the supervisory policy and research department of the BSP, said the BSP was coordinating closely with CCAP and that there is a six-month review each time they release a bulletin.
“For those review processes, we are coordinating with the credit card [companies], and we are also aware of their position regarding the ceiling and we consider it in our review,” she said.
Consumer rights groups Alliance of Concerned Consumers in the Philippines and Rights Action Philippines have earlier expressed wariness about rate hikes, voicing concerns over how they will affect credit card rates, among others. INQ