Sunday, April 17, 2011

Credit card charges: only 2% monthly

In the Philippines the Supreme Court has declared that credit card charges should only be two percent (2%) per month or twenty-four percent (24%) per annum.
This drastically reduces the contractual stipulation by credit card companies, which impose as high as one hundred eleven percent (111%) of interest, penalty and finance charges on credit card holders.
Based on contract, credit card companies can charge as high as 9.25% per month, broken down as follows:
Every month the credit card company slaps card holders with three percent (3%) interest .
In addition, another three percent (3%) imposed for penalty charges.
In addition, another 3.25 % percent is imposed for finance charges, for a total of 9.25% per month.
In one year, that could accumulate to 111% additional charges.
Thus, if you have a principal obligation of P100,000 to the credit card company, in one year, your debt can accumulate to more than double the principal amount.
This is just a ball bark figure (more or less) because we are not talking about monthly compounding of these charges, if this is in the contract..
The Supreme Court said these charges are too much.
“We are of the opinion that that the interest rate and penalty charge should be equitably reduced… to 2% per month or 24% per annum,” The Supreme Court said.
Courts are authorized by law to reduce interest and penalty charges if the court believes that the contractually agreed charges are unconscionable.
Under our example, if the credit card debt is P100,000.00, after a year, the total debt can accumulate to only around P124,000.00, more or less.
If you are in default in your credit card payments, and the credit card company slaps you will all sorts of charges, you can argue that the additional charges should only be two percent (2%) monthly.
It would also be advisable if the card holder go as far back in his/her bills so he/she can seek a re-computation at a rate of two percent (2%) per month in past statements of account.
[Ileana DR Macalinao versus Bank of the Philippine Islands, G.R. No. 175490, September 17, 2009.]

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