Press Release
September 10, 2009

CAP ON CREDIT CARD INTEREST RATES
WOULD STIMULATE SPENDING - CHIZ

Opposition Sen. Chiz Escudero yesterday allayed fears that putting a cap on credit card interests would retard the growth of the multi-billion peso lending industry, saying the measure would instead stimulate consumer spending.

"The conventional wisdom is for us to leave the market alone. But recent events in Wall Street have shown that it is not wise for government to do so, especially in a country where credit cards are used to pay tuition, buy essential goods, and pay power and telephone bills," he said.

The 39-year old lawmaker said the measure is aimed at protecting consumers from hidden charges and excessive interest rates and penalties being charged by companies.

"The bill now pending in the Senate, already approved on the committee level, is a regulatory measure for the protection of credit card holders. This is an exercise of the State's power to promote the welfare of its people," Escudero explained.

The senator pointed out that a recent report showing that nonperforming credit card receivables increased by 16.1 percent as of end-June this year to P16.5 billion, from P14.2 billion last year.

"People find it hard to pay their credit card bills because most of the time, what is reflected in their statements of account is not what they expected to pay because of compounding interests and hidden surcharges," said Escudero who chairs the Senate Committee on Banks, Financial Institutions and Currencies.

"Putting a cap on interest rates would work to diminish these credit card receivables, as more people can now afford to pay their credit card debts."

The proposed "Credit Card and Other Access Device Act of 2009," imposes a cap of one percent per month or 12% per annum on cap on interest rates imposed on credit card purchases and cash advances. Current rates average about 3 percent a month or 36 percent annually.

It also seeks to impose a ceiling on the surcharges or penalties charged by credit card companies to 1% per month on unpaid debts. In both instances, credit card companies are prohibited from compounding interest charges.

The bill has already passed second reading in the Senate and is expected to be deliberated upon in the plenary as early as this month.

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