Interest rate cap on credit card receivables
The Bangko Sentral ng Pilipinas recently issued Circular No. 1098, series of 2020 putting a ceiling on interest and finance charges for credit card receivables.
Under the circular, banks shall impose an interest or finance charge on all credit card transactions not to exceed an annual interest rate of 24 percent, except credit card installment loans which shall be subject to monthly add-on rate not exceeding one (1) percent. In case of credit card advances, no other charge or fee shall be imposed or collected apart from the processing fee in the maximum amount of P200.00 per transaction.
Banks shall only charge interest or finance charges arising from the non-payment in full or on time of the outstanding balance based on the unpaid amount of the outstanding balance as of statement cut-off date.
The BSP’s initiative is intended to ease the burden of every household including businesses severely affected by the pandemic. The policy issuance enables credit cardholders to settle financial transactions under more affordable pricing terms. It has been noted that the average annualized interest rate on credit card receivables range from 18 percent to 58 percent from January to June 2020.
Although credit card companies can no longer impose exorbitant interest charges to cardholders at least for the next 6 months beginning November 3, 2020, the responsible use of credit is still the key to avoid incurring hefty interest charges and other fees. For finance savvy users, credit cards can be a source of a short-term free trade credit. Irresponsible use, however, will lead to a financial disaster.