Press Release
February 11, 2009

PUT A CAP ON INTEREST RATES, HIDDEN CHARGES
Chiz: Credit cards dupes consumers

Senator Chiz Escudero on Wednesday urged credit card companies to put a cap on usurious interest rates and do away with unconscionable hidden charges, especially at this time of economic distress.

"This is where cardholders are being saddled. The compounding interests, surcharges and penalties on the unpaid part of the bill are what push the costs up. And most of the time, hidden charges add up to the burden," Escudero, chair of the Senate Committee on Banks, said in a statement after co-chairing a hearing on the credit card industry.

Escudero has called for the approval of Senate Bill 1438 (SB 1438) that seeks to put a ceiling on the interest rates and surcharges being levied by credit card companies, as well as prohibiting the practice of including hidden charges in the billing process of these firms.

The bill puts a cap of 1 percent per month or 12 percent per annum on the interest rates that can be charged by credit card companies. It also seeks to put a ceiling of 1 percent on the surcharges and penalties imposed by these firms.

At present, the lowest interest rate among credit card companies is at 2.5% while the highest is at 3.5%.

"The state has to come in to regulate the interest rates charged by these companies so that a healthier economic environment will prevail for the benefit of the consuming public and the credit card company."

In the same hearing, the opposition senator bewailed the failure of the Bangko Sentral to regulate and supervise credit card companies.

He cited the operations of OneCard, a credit card firm also part of the Legacy group owned by businessman Celso delos Angeles.

"The BSP only gives guidelines which credit card companies may or may not follow. In the end, it's still the market forces that guide their decisions and behaviors. The BSP cannot dictate or impose anything--not credit limits, penalties, membership fees, or a ceiling interest rate. There is barely a point of intervention for the BSP on the operations of these companies," Escudero said.

There are currently 14 credit card companies in the country, but not all are being regulated, he said. The transactions of OneCard, the sole company out of BSP's reach, are not being monitored because it does do not course its transactions through any bank.

The rest of the credit card companies use banks as conduits, placing them under the watch of the BSP. OneCard is also the only company not affiliated with Credit Card Association of the Philippines, Escudero bared.

"The ones at stake are the establishments that credited OneCard for purchases made by its cardholders, because the company probably cannot fulfill its obligations anymore just like the other companies owned by de los Angeles that had already closed down," he pointed out.

He also cited the prevalence of 5-6, a lending practice in many urban and rural poor communities which results in the debtor getting deeper into debt.

"Banks, which are essentially established and formal institutions, are being watched. But not informal ones, such as 5-6, which has zero track record, and OneCard, a virtually unknown credit card company," Escudero said.

"If this is a precedent of things to come, I fear what the future might bring. We don't want a credit crisis exploding in our midst," he added.

The senator said he is seriously looking into the reinstatement of the Anti-Usury Law which was suspended by the Central Bank in 1982 which lifted the restriction of interest cap and allowing parties to agree on the interest rate.

Escudero however said that even if the Anti-Usury law's efficacy had been suspended, it does not give credit card companies the license to charge prohibitive interest rates.

"We, at one time or another have heard a lot of horror stories involving credit cards, particularly the billing process and the abuses in the manner of collection. It is high time that we take a hard look at the issue and pass legislation that aims to protect the interest of the public" Escudero said.

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