MANILA (UPDATE) - The cap on credit card interest rates, finance charges and fees takes effect Nov. 3 Tuesday, the Bangko Sentral ng Pilipinas said.

“Starting on this date, interest or finance charges on unpaid outstanding credit card balance should not exceed 24 percent annually or two percent per month; the monthly add-on rate for credit card installment loans should not exceed 1 percent per month; and the processing fee on the availment of credit card cash advances should not exceed P200 per transaction,” SAID BSP Governor Benjamin E. Diokno

According to the BSP’s FAQ on the directive, the interest rate cap is meant to promote responsible credit card lending in the country.

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Rates and fees are subject to review by the BSP every six months.

The BSP said credit card interest or finance charges in the Philippines are relatively high compared to its ASEAN neighbors, the BSP said.

Malaysia and Thailand, also have an existing interest rate ceiling on credit card loans, the central bank noted.

The cap on interest aims to ease the financial burden of consumers, including micro, small- and medium business enterprises amid the challenges caused by the COVID-19 pandemic, it said.

The maximum annual interest rate of 24 percent, or 2 percent monthly, as well as the maximum monthly add-on rate of 1 percent for credit card installment loans, generally approximate the interest or finance charges currently imposed by the industry, according to the BSP.

“The ceiling on interest rate is also in keeping with the country's current low interest rate environment,” the BSP said.

The central bank has kept its policy rate, which banks use to price loans, at a record low of 2.25 percent. This is meant to encourage consumers and enterprises to borrow more money from banks for consumption and business expansion, and thus stimulate the economy.

It has also reduced the required reserve for banks, allowing them to lend more money to clients. Despite this, banks remain reluctant to lend due to worries that borrowers might not be able to repay what they owe given the impact of the pandemic.