BSP chief warns vs regulating credit card charges

Credit card firms are extracting some P24 billion a month in charges from the more or less 5.7 million card holders across the Philippines, enabling them to earn more money than any other financial institution, the Bangko Sentral ng Pilipinas (BSP) revealed this week. Because of this, legislators are now preparing policies to implement caps on charges, according to the BSP. BSP Gov. Amando Tetangco Jr. said he understands the reason behind ongoing efforts — particularly by lawmakers — to limit credit card charges to not more than 1 percent a month. However, he pointed out that this move may result in price distortion and other “unintended consequences" in the P136-billion credit card market. “We may be creating unintended consequences if we regulate interest rates on certain credit products and not on others. Determining what level is appropriate for one type versus another may create distortions that could unduly weaken the credit transmission power of monetary policy," Tetangco said in an e-mail to reporters. More competition Tetangco said what is needed now is to have an “environment where there is more competition to naturally temper prices and improve services." “With more competition and improved information, those who have funds to lend will be able to offer these at appropriate prices to targeted borrowers. And those who have projects for funding or even those with funding needs for consumer goods will be able to ‘shop around’ for the best lender that would suit their needs. We need to empower both lender and borrower," he said. The BSP official pointed out that the issue of exorbitant card rates can be solved by getting the approved Credit Information System Act or CISA working at once and by appointing capable officials and immediately funding its operations. “In the absence of an extensive working credit information bureau to allow credit companies to more efficiently determine which is good or poor, they resort to such a pricing scheme," he said. Tightened disclosure Tetangco said he recognizes why some card holders fail to fully understand the procedure for extracting charges because they do not read the fine print on the application forms or they are not sufficiently informed. “The issue of surprises in credit card fees in statements could be addressed by tightened disclosure practices and improving consumer financial literacy. These will help consumers determine, before they purchase using a credit card, if such a purchase is something that their cash flow could sustain," he said. “The BSP has a financial education program. We have recently beefed this up and energized this and have brought this around the country. One could say this is of a medium-term perspective. In other words, it's not a quick fix. But I believe a change in spending and consumption patterns in the public is necessary to engender a more lasting solution to the problem," Tetangco added. - JE/KBK, GMANews.TV