Setting a limit on credit card interest rates could adversely affect several government programs seeking to provide Filipinos with financial services, contends the Bankers Association of the Philippines regarding plans in that country to cap card interest rates.
Moreover, any effort to cap interest rates would only result in a reduction in how many consumers would qualify for cards as banks sift through potential clients’ financial qualifications, Aurelio Montinola, association president, told local media last week.
“The moment you cap interest charges you will have financial exclusion instead of financial inclusion because creditors will only lend to people they believe are able to pay the interest charges,” he reportedly said.
Association officials did not respond to PaymentsSource requests for comment.
This latest salvo offering the perspective of card issuers came after news senators in the country were discussing and preparing legislation that will limit credit card interest charges to 1% per month instead of market-determined rates. Last week, the head of the Philippines’ central bank warned against the efforts, saying capping rates might distort prices and cause other “unintended consequences” in the card market (see story).
Credit card firms are extracting some 24 billion pesos (US$552 million or 401 million euros) per month in interest charges from the 5.7 million cardholders across the Philippines, according to the central bank.
The country’s Supreme Court in 2009 ruled that charging credit cardholders an annual interest rate of more than 24% is “excessive and unconscionable.” Annual credit card interest rates in the Philippines range from 24% to 48%.
In August, the country’s Department of Trade and Industry said it would pass the issue of how to handle banks’ high card interest rates on to the central bank (see story). The department contends credit card interest-rate policies do not fall under its jurisdiction, prompting the Philippines Senate to take up the issue.
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