This is the concluding part of the series of articles appearing in this column on the following dates: (Part I – September 25, 2010; Part II – October 2, 2010; Part III – October 9, 2010; Part IV – October 16, 2010; Part V – October 23, 2010; and Part VI – October 30, 2010) on the subject: What credit cardholders should know about interests and penalties on credit card transactions.

In the interest of public service, let me now summarize the salient points that were discussed in the above-mentioned series of articles, as follows:

1) It is the Supreme Court decision in the much-publicized case of Ileana Dr. Macalinao (Petitioner) vs. Bank of the Philippine Islands (Respondent) – a case which deals on the rates of interest and penalty relating to credit card transaction that triggered varied public opinions on whether or not credit card companies should reduce the rates of interest and penalties relating to credit card transaction.

2) The Agreement signed between a credit card company and a credit cardholder which stipulates, among others the monthly rate of interest and the additional monthly penalty (like the Agreement between Macalinao and BPI) is a standard application form which the credit cardholder may accept or reject but which the credit cardholder cannot modify or amend. This Agreement is an example of a Contract of Adhesion. In the case of Philippine Commercial Bank vs Court of Appeals and Rory W. Lim (G.R. No. 97785, March 29, 1996), these types of contracts have been declared as binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely.

3) The ruling of the Supreme Court in the Macalinao case are as follows:

a) The stipulation of 3% monthly interest rate and 3% monthly penalty rate appearing in the Credit Card Agreement between BPI and Petitioner Macalinao was ruled to be excessive and iniquitous. The Supreme Court reduced the monthly rates of interest and penalty to 1% each;

b) Article 1229 of the Civil Code is the provision of law used by the Supreme Court to justify its reduction of the rate of interest and penalty charges. Article 1229 of the Civil Code states that:

“Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.”

c) Since the Agreement between BPI and Macalinao particularly on the rate of monthly interest was declared VOID by the Supreme Court, it decided on the matter of interest as if there was no expressed contract; and

d) While Article 1229 of the Civil Code as aforequoted refers only to penalty charges, the reduction of the rate of interest was also included in the Supreme Court decision.
4) Can banks now be compelled to reduce the interest rates to conform with the rate of interest prescribed in the Macalinao case? (monthly interest rate of 1% and monthly penalty rate of 1%)

The answer is NO. The Supreme Court in its decision in the Macalinao did NOT order banks/credit card companies to reduce their interest rates. Simply because it is only Congress or the Bangko Sentral ng Pilipinas (BSP) which can prescribe the rates of interest. However, the credit cardholder can cite the ruling in the Macalinao case in his/her reply in the event the credit card company sends a demand letter or in his/her written answer to a complaint filed by the credit card company. If in spite of the reply of the credit cardholder to a demand letter of the credit card company (citing the Supreme Court ruling in the Macalinao case), the credit card company decides to file a complaint in court, the credit cardholder in his/her Answer to the Complaint can again use the ruling in the Macalinao case to strengthen his/her case. There is however an additional expense to the credit cardholder once a complaint is filed in a court by a credit card company:- lawyer’s fees.

5) Another question:- Does it follow that exorbitant, iniquitous, and unconscionable credit card interest rates are also usurious? NO.

Let’s take a look at the relevant provisions of law on usurious rates, namely:- Act No. 2655, as amended and Central Bank Circular No. 905 dated December 10, 1982 promulgated on January 1, 1983. Act No. 2655, as amended is more popularly known as the Usury Law. This law was enacted on February 24, 1916. This Law was later amended by Presidential Decree (PD) 116 dated January 29, 1973; and Presidential Decrees (PD) 858 dated December 31, 1975 and PD 1684 dated March 17, 1980.

6) To date, there are a total of three (3) Senate Bills on the subject of reimposing the usury law and on the proposed reduction of interest charged by credit card companies. The three (3) Senate Bills were introduced by Senator Villar (SB No. 796), Senator Escudero (SB No. 166), and Senator Revilla, Jr. (SB No. 2492). On the other hand, there is one (1) House Bill introduced by Representative Mendoza (HB No. 1561) last July 19, 2010 and one (1) House Resolution filed by Representative Castelo (HR No. 474) last September 29, 2010).

The salient provisions of the three (3) Senate Bills and House Bill No. 1561 on interest rates, surcharges and reasonable attorney’s fees and expenses of collection are the same, as follows:-

• Interest rates shall not exceed 1% per month or 12% per annum, without compounding;
• Surcharges or penalties shall not exceed 1% per month, without compounding;
• Reasonable attorney’s fees and expenses of collection completely disclosed to, sufficiently understood by and voluntarily agreed with by an applicant for a credit card shall be allowed.

Finally, there are also some laws and regulations that were discussed in this special report on credit card transactions that credit cardholders should be familiarized with since these laws and regulations have relevance to credit card transactions of credit cardholders, namely:

A) The Truth in Lending Act (Republic Act No. 3765 approved on June 22, 1963);
B) The Access Devices Regulations Act of 1998 (Republic Act No. 8484 dated February 11, 1998);

C) BSP Circular No. 398 dated August 21, 2003;
D) BSP Circular No. 454 dated September 24, 2004; and
E) Credit Information System Act (Republic Act No. 9510 signed into law on October 31, 2008).

Have a joyful day!