Excessive credit card fees Raul J. Palabrica Philippine Daily Inquirer
November 05, 2009
AS THE HOLIDAY SEASON approaches, the temptation to indulge one’s self or make other people happy through expensive gifts is difficult to resist.
The financially prudent person will not spend money he has not yet earned. But with the easy availability of credit cards, that cautionary attitude is not easy to keep.
The resistance is further eroded by slick “interest-free installment payment” advertisements by credit card companies.
How nice to be able to buy or enjoy something you want (but not necessarily need) without having to check your wallet or run to the nearest ATM for cash.
With plastic money, the gratification is instant. Where or how to get the money to pay for that moment of bliss can wait until receipt of the bill from the credit card company.
If you have enough funds in your kitty, fine. The charges can be quickly settled. With the prompt payment, your credit standing remains unblemished.
It becomes problematic though if you overspent or miscalculated your projected cash flow. Failure to pay the bill on time would make you liable for interest and penalty charges on the unpaid amount.
The amount of additional charges that credit card companies can impose on reneging cardholders was (once again) passed upon by the Supreme Court in the recent case of “Ileana Macalinao v. Bank of the Philippine Islands,” G.R. No. 175490, Sept. 17, 2009.
Charges
The case is an offshoot of the failure of Macalinao, a cardholder of BPI Mastercard, to pay for purchases she made through her credit card in the amount of P141,518.34.
The credit card agreement states that balances that remain outstanding after the stipulated payment date shall bear interest at the rate of 3 percent per month and an additional penalty fee equivalent to 3 percent per month.
BPI sued Macalinao at the metropolitan trial court for the unpaid amount, plus 3.25-percent finance charges and late payment charges of 6 percent, or a total of 9.25 percent a month, which is equivalent to 111 percent a year.
This demand was on top of a separate claim for attorney’s fees and costs of suit.
The cardholder failed to file its answer to the complaint so the court allowed BPI to present its evidence on the unpaid obligations.
The court ruled in BPI’s favor and ordered Macalinao to pay the unpaid amount plus interest and penalty charges of 2 percent a month. The ruling was, upon her appeal, affirmed by the regional trial court.
The two lower courts declared the 9.25-percent interest and penalty charges as excessive and reduced them to 2 percent a month, or 24 percent a year.
Excessive
Unfazed by these setbacks, Macalinao elevated the case to the Court of Appeals which, ironically, increased the charges to 3 percent a month.
The appellate court invoked the provision of the credit card agreement earlier mentioned as justification for its action.
Undeterred, Macalinao petitioned the Supreme Court to overturn that decision with the argument that “the 3 percent per month imposed by the CA is iniquitous as the same translates to 36 percent per annum or thrice the legal rate of interest.”
For its part, BPI maintained that the charges are “reasonable as the same are based on the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card.”
The tribunal ruled in favor of Macalinao.
Admittedly, the credit card agreement between the parties provides for the imposition of 3 percent interest on unpaid charges.
But, the tribunal pointed out, in earlier cases it has said that “stipulated interest rates of 3 percent per month and higher are excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if not against the law.”
Recomputation
The tribunal conceded that C.B. [Central Bank] Circular No. 905-82, which took effect on Jan. 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity.
It explained, however, that “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 to a hemorrhaging of their assets.”
Following this principle, the tribunal said the subject credit card agreement’s provisions on interest and penalty charges are void. It is as if they did not exist at all.
Accordingly, in line with the authority granted by Article 1229 of the New Civil Code, our courts can reduce those charges as reason and equity demand.
The tribunal stressed, however, that in the exercise of that power, “courts must consider the circumstances of each case since what may be iniquitous and unconscionable in one may be totally just and equitable in another.”
Summing up, the interest rate and penalty charge earlier set by the appellate court at 1.5 percent monthly each was reduced by the tribunal to 1 percent or a total of 2 percent a month, or 24 percent a year.
In addition, Macalinao was ordered to pay BPI P10,000 as attorney’s fees and to reimburse the court fees it paid.
Moral of the story? Pay your credit card charges on time or, better still, live within your means.
For feedback, please write to rpalabrica@inquirer.com.ph
