Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla announced recently that the Monetary Board has seriously considered a proposal that would raise the monthly interest rate cap or finance charges on unpaid credit card balances from two per cent to three per cent.
In a media advisory, the BSP chief explained that they have finally decided to gradually raise the ceiling on credit card transactions rather than remove them in an abrupt manner.
According to BSP representatives, the circular has already been signed and they are now just awaiting permission for it to be released to the public.
The new circular will become effective 15 days after it has been published.
Higher credit card payments
With the proposed three per cent monthly cap or 36 per cent per annum, cardholders will soon be paying larger payments on their credit cards.
Before the imposition of the ceilings in 2020, the average maximum rate that banks have been charging credit cardholders was already at 36 per cent per year.
To give the market enough time to adjust to the idea that the ceiling will be raised this month, the BSP’s policy-making body, the Monetary Board, initially delayed its decision to increase the credit card rate and charges.
In its November 15, 2020 circular, the BSP announced that it will defer adjustment in the ceilings 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.”
Instead, the BSP said that it will keep the two per cent monthly cap (24 per cent per annum) interest rate on all credit card finance charges until the end of January this year.
Policy rates may be adjusted again in February or March
Time and again, the BSP chief has stated that raising the limits was required due to the 350 basis point (bps) increase in the benchmark interest rates that occurred between May 19 and December 15, 2022.
The November 15 decision under Circular No. 1098 was reached only because the central bank thought, at that time, that it would still be fair to allow credit card holders some relief despite rising interest rates. It also formed part of the BSP’s relief measures during the pandemic.
Consumer groups and some politicians have also appealed for BSP’s extension of the relief measure since a large majority of Filipinos are still struggling with the adverse effects of COVID-19. According to them, the BSP’s decision to continue implementing the ceilings on credit card transactions could help ease the financial burden of consumers through affordable credit card pricing.
Besides the ceiling on credit card rates and charges, the BSP’s November circular also imposed a limit on the monthly add-on rates that credit card issuers can charge its clients on instalment loans, which is a maximum rate of one per cent.
Currently, the BSP’s policy rate is at 5.5 per cent, but the Philippine central bank may be expected to raise the policy rate once again in February and March, which could bring the key rate above six per cent.