CREDIT-CARD companies heaved a collective sigh of relief after the proposed cap on credit-card interest rates was deleted from the provisions of a proposed legislation.
Credit Card Association of the Philippines (CCAP) Executive Director and Spokesman Alex Ilagan said the CCAP fully supports the consolidated bill, titled “An Act to Regulate the Philippine Credit Card Industry,” which was approved at the meeting of the Committee on Banks and Financial Intermediaries in November.
“The new bill ensures consumer protection through proper disclosure to card members of all pertinent information.
It also specifies limits on how quickly customer complaints or disputes should be resolved,” he told the BusinessMirror.
“It also gives the Bangko Sentral ng Pilipinas [BSP] full supervisory authority on all credit-card issuers and acquirers, including nonbank financial institutions, if any,” he added.
CCAP successfully lobbied against the ‘imposition of maximum limits on the interest rates that can be charged by credit-card companies’ as the provision was deleted in the proposed legislation.
The BSP also supported CCAP, saying that the setting of interest rate ceilings on credit cards may be detrimental to the larger financial inclusion effort of the government.
CCAP said credit-card interest is computed using the average daily balance method and is compounded monthly.
“There is a misconception that credit-card companies earn 42 percent per annum in interest. In reality, the revenue amount is roughly 20 [percent] to 22 percent, including fees,” CCAP said.
The organization also said that a significant portion, or 50 percent of credit-card holders pay in full on their due date, effectively getting interest-free credit in the process.
It said the average tenure of a balance for revolvers is six months and not the full year.
It added that roughly 10 percent to 15 percent of card balances are also on either the balance transfer facility or installment facility, where interest rates are from less than 1 percent to zero percent.
CCAP said running the card business entails huge investments on infrastructure such as merchant terminals, a card system, licensing requirement, 24/7 call center, marketing unit and a back office operations unit, such as statement printing and delivery, card embossing, and all elements integral to servicing the card business.
Operations cost run at some 5 percent to 7 percent of the receivable amount.
CCAP vowed to work closely with the BSP in ensuring the implementation of the new policy on compliance by all member banks.