Philippines Bans "Flat" Interest Rates on Loans

Strategic Insights -

The Monetary Board has issued a resolution disallowing banks from charging "flat" interest rates on loans, a move praised by Cagayan Rep. Jack Enrile as a victory for consumer protection and financial reform. The new policy prohibits banks from using "flat" rates and other methods that mislead consumers about the true cost of their borrowings. This decision comes after Rep. Enrile's repeated calls to end unfair practices by banks, including excessive interest rates and hidden charges. The resolution, which takes effect on July 1, 2012, aims to promote transparency and fairness in the banking sector.

Key Takeaways:

  • The Monetary Board has issued Resolution No. 1018, prohibiting banks from using "flat" interest rates and other methods that mislead consumers.
  • Rep. Jack Enrile has praised the decision, saying it validates his claims that banks have been making hefty profits from excessive interest rates.
  • The new policy requires banks to charge interest on the outstanding balance only of a loan at the beginning of an interest period.
  • Rep. Enrile is pushing for further reforms, including the Credit Access and Protection Reform Act of 2011, which seeks to protect credit card holders from excessive fees and interest rates.
  • The Supreme Court has ruled that interest rates above 3% per month are excessive, iniquitous, unconscionable, and exorbitant.
  • Compounded interests and penalty rates on credit card holders can skyrocket to 42% per annum due to deferred or late payments.
  • Rep. Enrile wants the BSP to review the interest rates being charged by credit card companies.

Statistics:

  • 42% per annum: The maximum interest rate that credit card holders can face due to deferred or late payments.
  • 3.5% average interest rate: The current average interest rate charged by credit card companies.
  • 3% per month: The upper limit for interest rates deemed excessive by the Supreme Court.
  • 1% per month: The proposed cap on interest rates for deferred payments on credit card purchases, as suggested by Rep. Enrile.
  • 15th Congress: The Philippine House of Representatives that approved the new policy.

Sources:

  • Philippines House of Representatives (15th Congress), Aug. 9
  • Bangko Sentral ng Pilipinas (BSP), Resolution No. 1018, July 7 (dated)