Interest rate cap could force credit card firms to close shop, says BAP
MANILA, Philippines - Banks and other credit card issuers warned congressmen yesterday that a cap on interest rates could force them to close their credit card business.
In position papers they submitted to the House committee on banks and financial intermediaries, the Bankers Association of the Philippines (BAP) and the Credit Card Association of the Philippines (CCAP) opposed bills seeking a ceiling on lending rates that credit card issuers could charge their customers.
According to the Bangko Sentral ng Pilipinas (BSP), there are about four million Filipinos using credit cards.
BAP president Aurelio R. Montinola III said although they recognize the laudable intention of the bills, in the ultimate analysis, an interest rate cap would harm consumers and could cause credit card companies to cease operations.
He said limiting lending rates results in “lower credit extension,” which is disadvantageous to consumers, many of whom would be forced to turn to the so-called “5-6” usurers, who charge at least 20% a month or 240% a year.
“Take the case of Japan where consumer lending dropped since companies can no longer take on higher risks thus lower income level individuals and families were deprived of credit extension. If the companies cannot compensate for the risks, then it is not prudent to extend credit,” he said.
“Given the proposed cap on interest rates, credit card businesses may be compelled to close operations...more of credit card holders will transfer or return to borrowing from informal sectors, which means exceedingly higher interest rates for customers and lesser taxes for the government,” Montinola stressed.
Simon Calasanz, CAAP president, expressed similar concerns.
“A credit card company is first and foremost a business. As such, it has to make a significant investment on infrastructure, systems, manpower, and the like before it can realize a profit,” he said.
“Capping the interest rate and the fees charged by these companies will, at best, effectively lengthen the time it will take for the company to recover and finance required new technology and infrastructure; at worst, capping interest rates will make the investment unrecoverable. This situation will eventually lead the credit card company to cease their operations and close shop,” he said.
“It takes years before a credit card company recovers its investments through the interest rates that it places on the credit card,” he said.
The Credit Card Misinformation Sampler: 2 Busted Myths and 3 ...
There’s a lot of good information out there about credit cards. Unfortunately, there’s also a lot of misinformation circulating as well. Personal finance, and especially credit card use, can be tricky. There are a lot of little rules to remember and monthly tasks to tackle. And now, there are new laws to adapt to as well. It’s hard to keep it all straight. Therefore, you might be operating under certain assumptions that you’ve picked up along your financial travels that are actually false and are hurting your credit performance. So, read up on these common credit card myths and mistakes and start righting these wrongs now.
Let’s start with the myths.
Myths1. My credit card will only benefit my credit score if I use it
If you’ve been relying on flawed personal finance principles, the odds are your credit score isn’t as high as it could be. It’s extremely important to have the highest possible credit standing, and you can accomplish this whether you use a credit card or not. While routinely making purchases and paying them off in full will more quickly improve your credit standing, simply having an open credit card at zero balance will help as well because your monthly credit utilization will be low (0%) and you will still get reported as being in good standing on a monthly basis. As a result, your major credit reports will fill with positive information, thereby improving your credit. Thanks to the CARD Act , you no longer have to worry about inactivity fees, so don’t hesitate to lock your card in a drawer.
2. You can only transfer credit card debt to a balance transfer credit card
Balance transfers are a great way to save money on interest. However, many people believe that only credit card debt can be transferred. In reality, however, you’re typically allowed to transfer any type of debt to a balance transfer credit card. Therefore, if you have a relatively small balance remaining on an auto loan, for example, you might be able to transfer it to a credit card in order to pay it down interest-free.
If you are attempting to make such a balance transfer though, there are two important factors to consider: the amount of time it will take to pay down your debt and the issuer of your balance transfer card. Before opening a balance transfer credit card, you must use a credit card payoff calculator to make sure you’ll be able to pay down your debt before the introductory period concludes because after this occurs, interest rates typically jump to around 15-20%. Additionally, some credit card companies, like Capital One, no longer approve applications for the transfer of debt that does not originate from a credit card. You should therefore also make sure to check issuer policies before opening a card with the intent of transferring non-credit card debt.