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The BSP says it is seeking to impose a maximum finance charge equal to an effective annual interest rate of 24 percent for credit card cash advances and installment purchases.
The BSP (Bangko Sentral ng Pilipinas) proposes to limit the financial charges imposed by banks and financial institutions on credit card loans, in an attempt to ease the burden on the consumer amid the Covid-19 pandemic.
In a draft circular, the BSP says it is seeking to impose a maximum finance charge equivalent to an effective annual interest rate of 24 percent for credit card cash advances and installment purchases. Currently, interest rates on credit cards are rising to 40 percent annually in the Philippines. Under the proposal, the ceiling will be subject to a review every six months.
Additionally, the BSP proposes to allow banks to only charge interest or finance charges based on the unpaid amount of the outstanding balance as of the statement closing date. Currently, banks calculate interest payable based on the outstanding balance at the beginning of each payment period, even if a portion of the outstanding balance has been paid before the cut-off date.
Credit card loans increased 28.4 percent to PHP 410.4 billion at the end of June, up from PHP 319.6 billion at the end of June 2019.
The ‘Bayanihan to Heal as One Act’ had prohibited banks, credit card issuers, and other financial institutions from charging interest on fees and charges during the Philippines shutdown, however the law expired on June 5. A second bill already approved by the House of Representatives and the Senate will allow an additional 60-day debt moratorium.
The Philippine Bankers Association (BAP), the Philippine Credit Card Association and the Philippine Management Association (MAP) said they have voiced support for the proposed ceiling for credit card finance charges, according to local reports. .
“We welcome this initiative by the BSP and hope that this collective effort by the banking industry will help ease the burden on our credit card holders during these challenging times,” said BAP President Cezar P. Consing, who also is CEO and President of Bank of the Philippine Islands.
According to Moody’s Investors Service, the interest rate cap will erode banks’ profitability and undermine their growth strategies, which is credit negative at a time of rising credit costs and problem loans.
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