Republic of the Philippines
HOUSE OF REPRESENTATIVES

Quezon City

FIFTEENTH CONGRESS

First Regular Session

House Bill No._1235

INTRODUCED BY REPRESENTATIVE ARTHUR C, YAP

EXPLANATORY NOTE

According to a recent news article, there are now four million Filipinos holding
around six and half million credit cards. This number approximates about five percent of
the entire population.

And, due to the aggressive marketing of credit card companies, this number is
expected to rise in the very near future. Consumers are being constantly wooed, by
promos and other marketing gimmicks, to avail of and use their credit cards for their
everyday purchases.

Unfortunately, a big percentage of these credit card holders do not possess the
discipline in the use of their credits. Instead of being mere substitutes for the use of cash,
the credit cards are being used as an extension of cash or money, they presently do not
have.

Consequently, these people, (who are mostly fixed income earners with no
additional money or provisioning for debt servicing) end up in debt, And, with the credit
card companies imposition of very prohibitive, exorbitant and unconscionable interest
rates, penalty and other finance charges, these credit card users dig themselves a grave of
debt (or death for that matter).

In the fairly recent case of ILEANA DR. MACALINAO versus BANK OF THE
PHILIPPINE ISLANDS, decided on September 17, 2009, the Supreme Court had the
opportunity to rule on the issue of the very prohibitive interest rates and penalty charges
of credit card companies.

In the said case, a complaint was filed by BPI against Macalinao. In its complaint,
BPI prayed for payment of the Macalinao’s liability for the use of the credit card,
including interest and penalty charges at the rate of 9.25% per month or 111% per
annum,

In its Decision, the Supreme Court found it equitable to reduce the interest rate to
1% per month and the penalty charge, also at 1% per month, or a total of 2% per month,
or 24% per annum.


The Court mentioned that the interest rates and penalty charges, as stipulated
under the “Terms and Conditions Governing the Issuance and Use of the BPI Credit
Card”, was excessive and unconscionable. It cited its prior ruling in the case of Chua vs.
‘Timan wherein it was ruled that:

The stipulated interest rates of 7% and 5% per month imposed on
respondents’ loans must be equitably reduced to 1% per month or 12%
per annum. We need not unsettle the principle we had affirmed in a
plethora of cases that stipulated interest rates of 3% per month and higher
‘are excessive, iniquitous, unconscionable and exorbitant. Such
stipulations are void for being contrary to morals, if not against the law.
While C.B. Circular No. 905-82, which took effect on January 1, 1983,
effectively removed the ceiling on interest rates for both secured and
unsecured loans, regardless of maturity, nothing in the said circular could
possibly be read as granting carte blanche authority to lenders to raise
interest rates to levels which would either enslave their borrowers or lead
fo a hemorrhaging of their assets.

Despite this Supreme Court ruling, it should be noted that most credit card
companies continue to charge interest rates and penalty charges which are higher than the
rates prescribed therein.

This draft measure would propose to limit the imposition of credit card interest
rate to 1% per month of 12% per annum, It would likewise impose a limit of 1% penalty
charge per month or 12% per annum.

More important, it would declare as criminal offense the imposition of interest
rates and penalties, higher than the above mentioned limits. The penalties range from the

payment of fine, imprisonment and even the suspension or revocation of their license to
‘operate as a credit card company.

With the passage of this measure, consumers would be protected from
unscrupulous credit card companies.

In view of the foregoing, the immediate passage of the bill is earnestly sought.

eo

ARTHUR C. YAP
Representative


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City
FIFTEENTH CONGRESS

First Regular Session

1235

House Bill No.

INTRODUCED BY REPRESENTATIVE ARTHUR C, YAP

AN ACT
PROTECTING CREDIT CARD USERS, LIMITING INTEREST
RATES AND PENALTY CHARGES, PROVIDING PENALTIES
FOR VIOLATIONS THEREOF, AND FOR OTHER PURPOSES.

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

SECTION 1. Short Title. - This Act shall be known as the “Credit Card Users
Protection Act of 2010”,

SECTION 2. Declaration of Policy. — It hereby declared the policy of the State
to protect consumers, particularly credit card users from prohibitive, unconscionable and
exorbitant interest rates, penalty and other finance charges.

SECTION 3. Definition of Terms. For purpose of this Act, the following terms
shall mean:

a. Interest Rate — amount paid by the user or consumer for the use of the credit

card in purchasing goods or services;

b. Penalty Charge ~ amount, in addition to interest, imposed on the credit card

holder for non-payment of an account within a prescribed period;

c. Finance Charge — amount, other than interest rate and penalty charge, imposed

on the indebtedness for the use of the credit card, excluding surcharges or

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transaction charges for the use of the cards, membership fees, cash advance
fees and other unrelated fees.

SECTION 4. Limit on Interest Rates, Penalty and other Finance Charges. Any
provision of law to the contrary notwithstanding, credit card companies shall be allowed
to impose a maximum of one percent (1%) per month or twelve percent (12%) per annum
for interest rates and one percent (1%) per month or twelve percent (12%) per annum for
penalty charges, compounded annually.

No other finance charges shall be allowed except reasonable attorney's fees and
costs of collection.

SECTION 5. Penalties - Any credit card provider who shall be found guilty of
violating any of the provisions of this Act shall be punished with:

a. imprisonment ranging from thirty (30) days to six (6) months or fine ranging from
One Thousand Pesos (P1,000.00) to Ten Thousand Pesos (P 10,000.00), or both, at
the discretion of the Court, and suspension of business permit and/or license to
operate as a credit card company for a period of thirty (30) days for the first
offense;

b. imprisonment ranging from six (6) months and one (1) day to two (2) years or
fine ranging from Twenty Thousand Pesos (P20,000.00) to Fifty Thousand Pesos
(P50,000.00), or both, at the discretion of the Court, and suspension of business
permit and/or license to operate as a credit card company for a period of six (6)
months for the second offense;

c. imprisonment ranging from two (2) years and one (1) day to six (6) years, or fine
of ranging from One Hundred Thousand Pesos (P100,000.00) to Five Hundred
Thousand Pesos (P500,000.00), or both, at the discretion of the Court, and
permanent revocation of business permit and/or license to operate as a credit card
company for subsequent offenses.

If the establishment is a juridical person, the penalty of imprisonment shall be

imposed against the responsible officer.


SECTION 6. Separability Clause. - If any provision of this Act, or any parts
thereof, is declared unconstitutional, the same shall not affect the validity and effectivity
of the other portions.

SECTION 7. Repealing Clause. - All laws, executive orders, presidential
decrees, proclamations, rules, regulations, issuances and enactments of parts thereof
inconsistent with this Act are hereby repealed or modified accordingly.

SECTION 8. Effectivity. - This Act shall take effect fifteen (15) days from its
complete publication in the Official Gazette of in a newspaper of general circulation in

the Philippines, whichever comes earlier.

APPROVED.