BSP hikes rate ceiling on credit card transactions

Heads up for lovers of plastic money.

The Monetary Board of the Bangko Sentral ng Pilipinas decided to adjust the ceilings on credit card transactions by increasing the maximum interest rate or finance charge imposed on a cardholder’s unpaid outstanding credit card balance by 100 basis points (bps) or from 2 percent to 3.0 percent per month.

Meanwhile, the existing ceiling on the monthly add-on rate that credit card issuers can charge on installment loans is maintained at a maximum rate of 1 percent. Similarly, the maximum processing fee on the availment of credit card cash advances remains at P200 per transaction.

BSP Governor Felipe M. Medalla said, “The policy aligns the credit card interest rate ceiling with developments in the macroeconomy and cushions the impact of inflationary pressure on banks’/credit card issuers’ ability to provide quality credit card services to their clients.”

The caps on credit card transactions were imposed by the BSP as a temporary relief measure to ease the financial burden of consumers from the COVID-19 pandemic and promote affordable access to credit.  In fixing the caps, the BSP considered the prevailing low interest rate environment during the pandemic.

The adjustment in the interest rate ceiling considers the upward trend in domestic interest rates on account of high inflation and BSP’s efforts to counter the same through successive policy rate hikes.

It will help banks/credit card issuers cover higher costs related to the efficient handling of consumer transactions, including prompt and timely dispute resolution, as well as the retention of competent personnel.

It will also make funding available for long-term investments that will institutionalize process improvements, strengthen cybersecurity and Information Technology systems, and nurture innovation in these financial institutions that will lead to better customer experience.

Given these circumstances, the BSP deems that the adjustment in the interest rate ceiling for revolving purchases is in keeping with the BSP’s mandate to determine the reasonableness of credit card fees and charges under Section 4 of the Philippine Credit Card Industry Regulation Law or R.A. No. 10870.

The decision is also consistent with the BSP’s objective of keeping credit card pricing affordable without jeopardizing the long-term viability of the credit card operations of banks/credit card issuers.

BSP Governor Medalla added that “The BSP will continue to implement complementary measures that will give consumers access to financial products at lower cost such as the provision of an enabling framework that will foster a level playing field for new market entrants, promote prudent digital innovation, enable responsible access to credit information, and uphold rights of financial consumers.”

The ceilings on credit card transactions will remain in effect unless revised by the BSP.

The BSP, however, will continue to monitor the domestic and external developments that may have an impact on consumers and the credit card industry, following a six-month review period.