Danger from credit card debt underscored
THE Bangko Sentral ng Pilipinas (BSP) has been asked to impose a cap on late credit card fees, citing the accumulation of such debt as “dangerous” for the economy and for consumers.
Albay Representative Joey Salceda said BSP should consider a cap on late payment fees as he warned the office that “accumulated unproductive debt” will hurt not just the credit card holders but the economy.
The chairman of the House Committee on Ways and Means made the appeal as higher interest rate caps on credit cards are set to take effect this month.
In his letter sent to BSP Governor Felipe Medalla, Salceda requested “that the BSP should consider imposing a cap on late credit card fees – especially accumulated late fees – to a certain fraction of total credit card debt.”
“I believe that such action will improve consumer outcomes without adversely affecting monetary policy,” Salceda said.
Saying that banks will probably keep earning more from fees despite such a cap, Salceda said that “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.
Earlier, 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.
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.
Salceda 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.
“Consumers will be hurt unless government action is taken,” he said.
