Higher credit card rates take effect

MANILA, Philippines — Banks have started charging higher interest rates on credit card transactions after the Bangko Sentral ng Pilipinas (BSP) raised the ceiling amid a series of aggressive rate hikes to tame inflation and stabilize the peso.

However, BDO Unibank Inc. has decided to move the effectiveness of its three percent higher monthly interest rate on credit card transactions to March 12 instead of February 10.

BSP issued Circular Letter 1165 stating that the higher ceiling for credit card transactions of three percent from two percent will take effect 15 days after being announced in either the Official Gazette or any newspaper.

“Instead of the effective February 10, 2023 as provided by BSP Circular 1165 adjusting the credit card monthly interest rate to three percent, BDO will provide additional reprieve by extending the adjustment date to March 12, 2023,” BDO said in an advisory.

The country’s largest bank, which is owned by the family of the late retail and banking magnate Henry Sy, encourages customers to change their transactions or balances through the bank’s low-interest rate installment offers.

BDO said that existing rates will still apply to all unpaid BDO credit card balances prior to the March 12 report date.

For installment transactions, the bank said that the interest due monthly remains a maximum of one percent.

Likewise, Ayala-led Bank of the Philippine Islands (BPI) said that a finance charge higher than the three percent nominal interest rate would take effect on March 13.

BPI said that a higher three percent cash advance finance fee or nominal interest rate would also take effect on March 13.

On the other hand, several banks, including Metropolitan Bank & Trust Co. (Metrobank) and China Banking Corp. began imposing higher interest rates on credit card fees on February 10.

“The monthly finance fee will increase from two to three percent. The new interest rate will apply to all unpaid balances and cash advance transactions posted to your account. The maximum one percent additional monthly rate for Metrobank Balance Transfer, Cash2Go and Balance Conversion, will remain the same,” said Metrobank in an advisory.

On January 13, BSP passed Resolution 5513 increasing the maximum interest rate or finance fee charged on outstanding cardholders’ credit card balances by 100 basis points to three percent from two percent per month or 36 percent from 24 percent per year.

On the other hand, the existing ceiling on the additional monthly rate that credit card issuers can charge for installment loans is maintained at a maximum rate of one percent.

Likewise, the maximum processing fee for using a credit card cash advance remains at P200 per transaction.

“This policy aligns credit card interest rate ceilings with macroeconomic developments and dampens the impact of inflationary pressures on the ability of banks and credit card issuers to provide quality credit card services to their clients,” said BSP Governor Felipe Medalla earlier.

Regulators review maximum processing fees and interest rates or finance fees every six months.

BSP imposed restrictions on all credit card transactions in November 2020 as a temporary relief measure to ease consumers’ financial burden due to the COVID-19 pandemic and promote affordable access to credit.

The BSP has so far raised its key policy rate by 400 basis points, taking the benchmark rate to a 16-year high of 6 percent from an all-time low of 2 percent.

According to the BSP, the higher limit will help banks and credit card issuers cover the higher costs associated with the efficient handling of consumer transactions, including prompt and timely resolution of disputes and the retention of competent personnel.

“It will also provide funding for long-term investments that will institute process improvements, strengthen cyber security and information technology systems, and nurture innovation in these financial institutions which will lead to a better customer experience,” said the head of BSP.

The latest data from the central bank showed credit card loans jumped 26.3 percent to P554.31 billion last year from P438.81 billion in 2021.