Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
First Regular Session

1919
HOUSE BILLNO.

Introduced by: HON. MA. AMELITA CALIMBAS - VILLAROSA

EXPLANATORY NOTE

This bill seeks to provide adequate protection to users of credit cards, a
commercial breakthrough that emerged in recent years. Gone are the days
when people would shop around bringing substantial amount of cash with them
because of the expediency and security offered by the use of these credit cards.
Unfortunately, with such convenience comes great responsibility. The ease with
which one can purchase on credit has lured many clueless consumers to make
improvident acquisitions that eventually lead to their economic collapse because
of compounded interest charges and hefty penalties imposed over and above
their outstanding balance.

While the 1987 Constitution guarantees the freedom of parties to stipulate
terms and conditions in a contract as they see fit, equally fundamental is the legal
maxim that such stipulations should not contravene law, morals, good customs,
public order or public policy. Hence, while the Usury Law has been suspended
by Central Bank Circular No. 905, series of 1982, and since its effectivity on
January 1, 1983 parties to a loan agreement have been given wide latitude to
agree on any interest rate, it is well-settled in Philippine Jurisprudence’ that
stipulated interest rates are illegal if they are unconscionable. Nothing in the said
Central Bank Circular grants lenders carte blanche authority to raise interest
levels which will either enslave their borrowers or lead to a hemorrhaging of their
assets.

On April 22, 2003, the Supreme Court promulgated the important decision
of Ruiz v. Court of Appeals, 401 SCRA 410 (2003), where it struck down the
stipulated interest rate of 36% per annum on a loan agreement and reduced the
same to 12% per annum. Moreover, an explicit ruling was made that the only
permissible rate of surcharge or penalty on an unpaid loan is 1% per month,
without compounding. The highest court of the land reiterated that a stipulated
penalty be equitably reduced if it is iniquitous or unconscionable.

We have, at present, the Truth in Lending Act requiring strict disclosure of
all important terms and conditions of loan agreements entered into by the
borrowing public with banks and similar financial institutions to guide the former
through the labyrinth of legalities in fine print loan documentation, affording them
the opportunity to give intelligent and informed consent before they bind

Sps. Solangon vs. Salazar, 360 SCRA 379 (2001) and a long line of cases before it.


themselves to perhaps a lifetime of paying loan amortization as well as commit
their real and personal properties as collateral.

There remains to be a void, however, in legislation and in jurisprudence,
regarding the wide-spread use of the so-called “plastic money” or credit card and
the crippling interest rates and penalties that go with it. Most credit card
companies impose an interest rate ranging from 3% to 4.25% per month on a
credit card holder's revolving unpaid balance. This would translate to 36% to
51% per annum. The burden is heightened by fine print stipulations on
compounded surcharges or penalties that come as a surprise to unassuming
credit card users. Hence, the pressing need to provide them adequate protection
through statutory sanction to bolster the above-discussed judicial admonition
against unconscionable interest rates, surcharges or penalties

Ny

MA. AMELITA CALIMBAS - VILLAROSA


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS

First Regular Session

1919
HOUSE BILL NO.

Introduced by: HON. MA. AMELITA CALIMBAS - VILLAROSA

AN ACT PROVIDING PROTECTION TO
CREDIT CARD HOLDERS BY SETTING A CEILING ON
INTEREST RATES AND SURCHARGES AND PROHIBITING
HIDDEN PENALTIES OR COSTS IMPOSED BY BANKS AND
SIMILAR FINANCIAL INSTITUTIONS ON PURCHASES AND
CASH ADVANCES MADE THROUGH SUCH CREDIT FACILITY.

Be it enacted by the Senate and the House of Representatives of the
Philippines in Congress so assembled.

SECTION 1, Interest rates imposed by credit card companies on
purchases and cash advances made through such facility shall in no case be
higher than 1% per month or 12% per annum, without compounding,

SECTION 2. Surcharges or penalties shall likewise be limited to a ceiling
of 1% per month, without compounding

SECTION 3. No other costs shall be imposed other than the foregoing
except for reasonable attorney's fees and expenses of collection completely
disclosed to, sufficiently understood by and voluntarily agreed with by an
applicant for credit card facility.

SECTION 4. The pertinent provisions of the Truth in Lending Act shall
apply suppletorily insofar as relevant and complementary to the provisions of this
Act.

SECTION 5. This Act shall take effect immediately upon its approval