MANILA (UPDATE) – The cap on credit card interest rates, finance charges and fees will go into effect on November 3 on Tuesday, the Bangko Sentral ng Pilipinas said.

“From that date, interest or finance charges on the outstanding credit card balance must not exceed 24% per year or 2% per month; the monthly premium rate for installment credit card loans must not exceed 1% per month; and the processing fee on the use of credit card cash advances should not exceed P200 per transaction, ”said BSP Governor Benjamin E. Diokno

According to BSP Faq Regarding the directive, the interest rate cap aims to promote responsible credit card lending in the country.

Rates and charges are subject to review by BSP every six months.

BSP said credit card interest or finance charges in the Philippines are relatively high compared to its ASEAN neighbors, BSP said.

Malaysia and Thailand also have an interest rate cap on credit card loans, the central bank noted.

The interest cap aims to ease the financial burden on consumers, including micro, small and medium-sized businesses amid the challenges caused by the COVID-19 pandemic, he said.

The maximum annual interest rate of 24%, or 2% per month, along with the maximum monthly premium rate of 1% for installment credit card loans, generally approximates the interest or finance charges currently charged by industry, according to the BSP. .

“The interest rate cap is also in line with the country’s current low interest rate environment,” BSP said.

The central bank has kept its policy rate, which banks use to price loans, at a low record by 2.25 percent. This is intended to encourage consumers and businesses to borrow more money from banks for consumption and business expansion, thereby stimulating the economy.

It also reduced the reserve required for banks, allowing them to lend more money to customers. Despite this, the banks remain reluctant to lend because of the fear that borrowers will not be able to repay what they owe given the impact of the pandemic.