New BSP circular on credit card transactions

MANILA, Philippines - On December 15, 2010, Circular No. 702, the latest regulation of the Bangko Sentral ng Pilipinas (BSP) on credit card transactions was promulgated. On December 22, 2010, BSP Circular No. 702 was published in one of the newspapers of general circulation. The effectivity of Circular 702 is January 6, 2011 which is fifteen (15) days following its publication.

It will be recalled that earlier, on September 25, 2010 to be exact, the first of a series of 7 articles on credit card transactions came out in this column. The title of the series of articles is "What credit cardholders should know about interests and penalties on credit card transactions."

These articles were written in the interest of public service. At that time, there were varied public opinions on whether or not credit card companies should reduce the rates of interest and penalties relating to credit card transactions. The varied public opinion was triggered by the decision of the Supreme Court in the much-publicized case of Ileana Dr. Macalinao vs Bank of the Philippine Islands, a case which deals on the rates of interest and penalty relating to credit card transactions.

The salient features of Circular No. 702 are as follows:

A. "Banks/Quasi-banks and their subsidiary or affiliate credit card companies shall not issue pre-approved credit cards.

"Before issuing credit cards, banks/quasi-banks and/or their subsidiary/affiliate credit card companies must exercise, x x x proper diligence by ascertaining that applicants possess good credit standing and are financially capable of fulfilling their credit commitments.

"The net take home pay of applicants who are employed, the net monthly receipts of those engaged in trade or business, or the net worth or cash flow inferred from deposits of those who are neither employed nor engaged in trade or business or the credit behavior exhibited by the applicant from his other existing credit cards, or other lifestyle indicators such as, but not limited to, club memberships, ownership and location of residence and motor vehicle ownership shall be determined and used as basis for setting credit limits. The gross monthly income may also be used provided reasonable deductions are estimated for income taxes, premium contributions, loan amortizations and other deductions.

"All credit card applications, specifically those solicited by third party representatives/agents, shall undergo a strict credit risk assessment process and the information stated thereon validated and verified by authorized personnel of the banks/quasi-banks and their subsidiary or affiliate credit card companies, other than those handling marketing."

B. "Banks/Quasi banks and their subsidiary or affiliate credit card companies shall also provide the following information to their cardholders:

"1. A table of the applicable fees, penalties and interest rates on credit card transactions, including the period covered by and the manner of and reason for the imposition of such penalties, fees and interests; fees and applicable conversion reference rates for third currency transactions, in plain sight and language, on materials for marketing credit cards, such as brochures, flyers, primers and advertising materials, on credit card application forms, and on credit card billing statements: Provided, That these disclosures are in addition to the full disclosure of the fees, charges and interest rates in the terms and conditions of the credit card agreement found elsewhere on the application form and billing statement; and "2. A reminder to the cardholder in the monthly billing statement, or its equivalent document, that payment of only the minimum amount due or any amount less than the total amount due for the billing cycle/period, would mean the imposition of interest and/or other charges:

"Provided, That such table of fees, penalties and interest rates and reminder shall be printed in plain language and in bold black letters against a light or white background, and using the minimum Arial 12 theme font and size or its equivalent in readability, and on the first page, if the applicable document has more than one page.

"Transitory provisions. Banks/Quasi banks and their subsidiary or affiliate credit card companies shall be given a period of 120 days from the date of the effectivity of this Circular to fully implement the required disclosure requirements."

C. "Banks/quasi-banks and their subsidiary/affiliate credit card companies shall inform their cardholders in writing of the endorsement of the collection of their account to a collection agency/agent, or the endorsement of their account from one collection agency/agent to another, at least seven (7) days prior to the actual endorsement. The notification shall include the full name of the collection agency and its contact details: Provided, That the required notification in writing shall be included in the terms and conditions of the credit card agreement. Banks/quasi-banks and the subsidiary/affiliate credit card companies shall adopt policies and procedures to ensure that personnel handling the collection accounts, whether these are in-house collectors, or third-party collection agents, shall disclose his/her full name/true identity to the cardholder."

All the foregoing provisions of BSP Circular No. 702 (suppletory to Circular No. 398 dated August 21, 2003 and Circular No. 454 dated September 24, 2004) are additional safeguards to protect the credit cardholders-users.

Have a joyful day!

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