The head of the central bank in Philippines reportedly is warning against government efforts to limit the interest rate applied to credit cards at 1% per month.

Capping the rate might result in price distortion and other “unintended consequences” in the credit card market, Amando Tetangco Jr., governor of the Bangko Sentral ng Pilipinas, told local news website GMA News. “Determining what level is appropriate for one type versus another may create distortions that could unduly weaken the credit-transmission power of monetary policy,” he said.

Instead, Tetangco suggested creating a more-competitive environment to naturally temper prices and improve services. Getting the approved Credit Information System Act working and establishing a credit bureau could solve the issue of exorbitant card rates, he added.

“In the absence of an extensive working credit-information bureau to allow credit companies to more efficiently determine [who has] good or poor (credit), they resort to such a pricing scheme,” Tetangco said.

Also needed are tightened disclosure practices and improved consumer-financial literacy, which could help consumers determine whether a credit card purchase is wise for them financially, he noted.

PaymentsSource could not reach the governor for comment.

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.”

In August, the country’s Department of Trade and Industry said it would pass the issue of how to handle banks’ excessively high credit card interest rates on to the central bank (see story). The department said national credit card interest-rate policies do not fall under its jurisdiction.

The issue now has come back to the Philippines Senate, where legislators are preparing policies to impose rate caps, according to the central bank.

Annual interest rates on credit cards in Philippines range from 24% to 48% across card issuers.

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