Albay Rep. Joey Salceda, House ways and means committee chairperson, is requesting the Bangko Sentral ng Pilipinas to impose a cap on late credit card fees, citing the accumulation of such debt as “dangerous” for the economy and for consumers.
“I believe that such action will improve consumer outcomes without adversely affecting monetary policy,” he said.
In a Feb. 11 letter to BSP Governor Felipe Medalla, the lawmaker asked “that the BSP consider imposing a cap on late credit card fees, especially accumulated late fees, to a certain fraction of total credit card debt.”
Saying that banks would probably keep earning more from fees despite, such a cap, he said “in 2022, bank earnings from fees and commissions went up by an annual 13.6 percent to P121.851 billion, outpacing earnings growth from actual interest income (12.8 percent).”
“This suggests that increasingly, banks are profiting from activities such as fee-charging that do not directly increase credit availability in the market. Late credit card fees do not create additional consumer welfare, and merely increase non-productive debt,” he said.
“As the BSP has approved Resolution No. 55, which adjusts the cap on credit card interest rates back to 3 percent, and Circular 1165 to implement the resolution, the compounding effect of interest rate adjustments on late fees and other “junk” fees are bound to likewise increase,” his letter read.
“Late credit card fees can reach as high as 7 percent of the unpaid minimum balance. Additionally, the late fees are added to the finance charge computation. Higher interest rates will thus significantly increase the impact of late fees on consumer debt,” he noted.
He warned that the accumulation of “unproductive debt such as interest on accumulated late fees is dangerous for the economy and for consumers.”
“The more you allow banks to earn from such debts, instead of incentivizing them to create actually productive loan products, the less productive your credit will be. That’s terrible for the economy. And I am seeing signs of bank behavior pointing to that, including the increasing share of bank income from such fees,” he maintained.
He also warned that “consumers will be hurt unless government action is taken.”
“When all that debt accumulates, you will see banks sell these unproductive debts to debt collectors or other institutions – and some of them have predatory practices in loan collection. That’s like feeding bank consumers to the lions,” he said.
“The rise in interest rates will increase accumulated unproductive debt. SoI hope the BSP takes action in nipping the problem in the bud,” he added.
