BSP to review 3% rate cap on credit card transactions

The Bangko Sentral ng Pilipinas (BSP) will review this month whether to keep or hike the three percent interest rate cap on credit card transactions.

BSP Deputy Governor and head of the Financial Supervision Sector (FSS) Chuchi Fonacier said the FSS is working on recommendations whether to adjust the maximum interest rate or finance charge imposed on a cardholder’s unpaid outstanding credit card balance.

“Many factors are being considered. Hence, it’s a long process before we can finalize,” Fonacier said in a Viber message to reporters.

The central bank last kept the interest rate ceiling in August 2023. The maximum interest rate on unpaid outstanding card balance of a cardholder is currently at three percent per month or 36 percent a year.

Meanwhile, the existing ceiling on the monthly add-on rate that credit card issuers can charge on installment loans is at one percent. The maximum processing fee on the availment of credit card cash advances is also at P200 for each transaction.

The move followed the earlier decision of the central bank in January last year, where the Monetary Board hiked the credit card cap by 100 basis points from two percent previously. This was meant to reflect the BSP’s policy tightening and to mitigate the impact of inflationary pressures on banks and credit card issuers.

The Monetary Board raised key policy rates by 450 basis points from May 2022 to October 2023, bringing the benchmark interest rate to a near 17-year high of 6.5 percent from an all-time low of two percent.

The BSP, which reviews the interest rate ceilings on credit card transactions every six months, supervises credit card issuers and acquirers under the Republic Act 10870 or the Philippine Credit Card Industry Regulation Law. The BSP also determines the rationality of fees and charges, and allows the regulator to adjust interest rate ceiling for revolving purchases.

The BSP earlier imposed a cap on all credit card transactions as a temporary relief measure to ease the financial burden of consumers from the COVID-19 pandemic and promote affordable access to credit.

In 2023, latest data from the central bank showed credit card loans climbed by 29.6 percent to P719.63 billion from P555.283 billion in the same period a year ago.

This translated to a 23.5-percent increase in consumer loans to P1.27 trillion in December despite the high interest rate environment due to the central bank’s aggressive rate hikes.