BSP increases interest rate cap on credit card transactions to 3% a month

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) has increased the interest rate cap on credit card transactions from 2% to 3% per month, or 100 basis points.

“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,” BSP Governor Felipe Medalla said in a statement on Friday, January 20.

Meanwhile, the existing ceiling on the monthly add-on rate that credit card issuers can charge on installment loans stays at a maximum rate of 1%.

The maximum processing fee on availing credit card cash advances remains at P200 per transaction.

The caps on credit card transactions were a “temporary relief measure” to ease consumers’ burden during the COVID-19 pandemic, and to allow affordable access to credit. The BSP said in fixing the caps, it considered the prevailing low interest rate environment during the pandemic.

In increasing the interest rate ceiling, the BSP factored in the upward trend in domestic interest rates due to high inflation, and the BSP’s efforts to counter them through successive policy rate hikes.

The BSP sees the adjusted interest rate helping banks and credit card issuers cover higher costs related to the efficient handling of consumer transactions, which include timely dispute resolution and 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,” the BSP said in a statement.

The BSP maintained that the decision to adjust interest rates is in line with its mandate to determine the reasonableness of credit card fees, and its goal to keep credit card pricing affordable.

“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,” said Medalla. – Rappler.com