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Credit card debt seen piling up as officials raise interest rate ceiling

(Photo from Pixabay)

Consumers who rely on their credit cards to cope with the soaring prices of consumer goods should brace for higher bills, as the Monetary Board (MB) has decided to increase the maximum finance charge on a cardholder's unpaid outstanding credit card balance by 100 basis points (bps) to 3% per month.

The board, however, maintained the existing ceiling of 1% on the monthly add-on rate that credit card issuers can charge on installment loans. The maximum processing fee for credit card cash advances also remains at P200 per transaction, the Bangko Sentral ng Pilipinas (BSP) announced late Friday, Jan. 20, 2023.

BSP Governor Felipe M. Medalla said the higher finance charge ceiling would "cushion the impact of inflationary pressure on banks and credit card issuers' ability to provide quality credit card services to their clients." The rates will be reviewed after six months.

The adjustment follows the successive policy rate hikes imposed by the MB to counter the impact of an elevated inflation rate. The country's headline inflation reached a new high of 8.1% in December 2022, as prices of consumer goods and services, led by the food and non-beverages basket, continued to soar.

The Philippine Statistics Authority (PSA) said the 8.1% inflation rate was the highest since November 2008 and was more than double the 3.1% recorded in December 2021.

(Image from Philippine Statistics Authority)

In a statement, the central bank said the higher interest rate ceiling on credit card transactions 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;

  • 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.

The Bangko Sentral cited Section 4 of the Philippine Credit Card Industry Regulation Law or R.A. No. 10870, which mandates it to determine the reasonable credit card charges.

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, the central bank said.

"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,” Medalla said.

So, before you whip out that credit card, think of the higher bills you'd have to pay. (Marites Villamor-Ilano)

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