Excessive credit card rates; 2009 decision.

"We find for petitioner. We are of the opinion that the interest rate and penalty charge of 3% per month should be equitably reduced to 2% per month or 24% per annum.
Indeed, in the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, there was a stipulation on the 3% interest rate. Nevertheless, it should be noted that this is not the first time that this Court has considered the interest rate of 36% per annum as excessive and unconscionable." - Supreme Court.

Notes in re: MACALINAO VS. BPI, GR 175490, SEPT. 17, 2009, on EXCESSIVE CREDIT CARD RATES.

Bill seeks to limit credit card rates
By Jess Diaz (The Philippine Star) Updated October 17, 2010 12:00 AM Comments (3)

MANILA, Philippines – A party-list congressman filed Friday a bill that seeks to limit the interest rate being charged by credit card companies to one percent a month or 12 percent a year.

At present, these companies charge 2.5 percent to 3.5 percent a month, or from 30 percent to 42 percent a year.

In filing House Bill 1561, Rep. Raymond Mendoza of the Trade Union Congress of the Philippines said there is a need to protect credit card users from exorbitant rates being charged by card issuers.

“With penalties, late payment fees and other compounding charges, the rate is more than what 5-6 operators charge,” he said.

He was referring to usurers, who usually charge a 5-6 rate, which is equivalent to 20 percent. But this rate is good for one month, sometimes less, which means it translates to 240 percent a year.

Mendoza said credit card issuers should follow the ruling of the Supreme Court in the case Ileana Macalinao vs. Bank of Philippine Islands, which was promulgated on Sept. 29, 2009.

He quoted the ruling: “We are of the opinion that the interest rate and penalty charge…should be equitably reduced to two percent per month or 24 percent per annum.”

He said under the decision, stipulations about “excessive, iniquitous, unconscionable and exorbitant rates are void for being contrary to morals, if not against the law.”

Mendoza’s bill sets an interest rate cap of one percent a month or 12 percent a year without compounding.

An additional one percent could be charged for penalties and surcharges, also without compounding.

There would also be no fee for exceeding the credit cardholder’s limit.

“With the growing number of credit card users, it is only just that their rights are protected and that the laws governing the industry are laid down in black and white and are properly implemented,” Mendoza said.

see - http://www.philstar.com/Article.aspx?articleId=621462&publicationSubCategoryId=66


Export Action Line
What Credit Cardholders Should Know About Interests and Penalties on Credit Card Transactions (Part 1)
By ATTY. NELLY FAVIS-VILLAFUERTE
September 24, 2010, 7:43pm

This series of articles on the subject, “What credit cardholders should know about interest and penalties on credit card transactions” is a public service to enlighten credit cardholders on the subject of interests and penalties relating to their credit card transactions.

On September 17, 2009, the Supreme Court promulgated its decision in the much-publicized case entitled 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.

The Macalinao case is an appeal to the Supreme Court by a credit cardholder of BPI Mastercard of a decision of the lower courts [Metropolitan Trial Court of Makati (MeTC), Regional Trial Court (RTC) of Makati City and Court of Appeals (CA)] – basically on the matter of the amount of monthly interest rate and monthly penalty rate that petitioner Macalinao should be paying BPI for the use of her BPI Mastercard.

The facts of the case show that Petitioner Macalinao defaulted in paying for her purchases as a credit cardholder of BPI Mastercard although she made previous partial payments. Under the provisions of the Agreement between Macalinao and BPI (embodying the Terms and Conditions governing the issuance and use of the credit card), the charges or balance thereof remaining unpaid after the payment due date indicated on the monthly Statement of Accounts shall bear interest at the rate of 3% per month and an additional penalty fee equivalent to another 3% per month.

Upon default of payment by Macalinao, BPI sent a letter dated January 5, 2004 demanding payment from Macalinao in the amount of P141,518.34. For failure of Macalinao to pay, BPI filed a complaint with the Metropolitan Trial Court (MeTC) of Makati against Macalinao and her husband Danilo Macalinao. Despite the fact that a copy of the complaint was served to the Macalinao spouses, they failed to file their answer. BPI then moved that the judgment be rendered in accordance with Section 6 of the Rule on Summary Procedure.

Section 6 of the Rule on Summary Procedure states that: “Should the defendant fail to answer the complaint within the period above provided, the court, motu proprio, or on motion of the plaintiff, shall render judgment as may be warranted by the facts alleged in the complaint and limited to what is prayed for therein: Provided, however, that the court may in its discretion reduce the amount of damages and attorney’s fees claimed for being excessive or otherwise unconscionable. x x x ”

In its complaint, BPI prayed for the payment of the amount of one hundred fifty-four thousand six hundred eight pesos and seventy-eight centavos (P154,608.78) plus 3.25% finance charges and late payment charges equivalent to 6% of the amount due from February 29, 2004 and an amount equivalent to 25% of the total amount due as attorney’s fees, and of the cost of suit.

The decision of the Metropolitan Trial Court (MeTC) was for petitioner Macalinao and her husband to pay the amount of P141,518.34 plus 2% interest and penalty charges per month from January 5, 2004 until fully paid.

The above-mentioned decision of the Metropolitan Trial Court (MeTC) was appealed by Macalinao and her husband to the Regional Trial Court (RTC) of Makati City. The Regional Trial Court (RTC) affirmed the decision of the Metropolitan Trial Court (MeTC) on October 14, 2004.

Petitioner Macalinao later filed a petition for review with the Court of Appeals (CA). (Macalinao filed the petition before the Court of Appeals (CA) alone since her husband died on October 18, 2005) The Court of Appeals (CA) affirmed the decision of the Regional Trial Court (RTC) with modification as to total amount due and the rate of interest and penalty charges. More specifically, the Court of Appeals (CA) increased the interest and penalty charges from 2% to 3% per month from January 5, 2004 until fully paid and the total amount was decreased from P141,518.34 to P126,706.70.

The basis of the decision of Court of Appeals (CA) to increase the rate of interest and penalty charges imposed by the Regional Trial Court (RTC) is the Agreement between BPI and the spouses Macalinao (embodying the Terms and Conditions governing the issuance and use of the BPI Credit Card) which stipulates, among others, a 3% monthly rate of interest and an additional penalty fee equivalent to another 3% of the amount due for every month.

The Court of Appeals (CA) further said that “respondent BPI should not compound the interest in the instant case in the absence of a stipulation to that effect. The CA also held, however, that the MeTC erred in modifying the amount of interest rate from 3% to monthly to only 2% considering that petitioner Macalinao freely availed herself of the credit card facility offered by respondent BPI to the general public. It explained that contracts of adhesion are not invalid per se and are not entirely prohibited.” (Emphasis supplied)

One may ask: What is 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), the Supreme Court said, “A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract, which the other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his signature or his "adhesion" thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing. Nevertheless, 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.”

In the same aforementioned case, the Court further said: “It is equally important to stress, though, that the Court is not precluded from ruling out blind adherence to their terms if the attendant facts and circumstances show that they should be ignored for being obviously too one-sided. Indeed, Article 21 of the Civil Code is quite explicit in providing that "[a]ny person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage." Freedom of contract is subject to the limitation that the agreement must not be against public policy and any agreement or contract made in violation of this rule is not binding and will not be enforced.”

In short, the Agreement between Macalinao and BPI is a standard application form which Macalinao may accept or reject but definitely the latter cannot modify or amend. This Agreement is an example of a Contract of Adhesion. (TO BE CONTINUED)

see - http://www.mb.com.ph/articles/278856/what-credit-cardholders-should-know-about-interests-and-penalties-credit-card-transa


CORPORATE SECURITIES INFO
Corporate Securities Info : Excessive credit card fees
By Raul J. Palabrica
Philippine Daily Inquirer
Posted date: 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
©Copyright 2001-2010 INQUIRER.net, An Inquirer Company

see - http://services.inquirer.net/print/print.php?article_id=20091105-234472



ILEANA DR. MACALINAO vs. BANK OF THE PHILIPPINE ISLANDS, G.R. No. 175490, Sept. 17, 2009


X x x.

The Facts

Petitioner Ileana Macalinao was an approved cardholder of BPI Mastercard, one of the credit card facilities of respondent Bank of the Philippine Islands (BPI).[3][3] Petitioner Macalinao made some purchases through the use of the said credit card and defaulted in paying for said purchases. She subsequently received a letter dated January 5, 2004 from respondent BPI, demanding payment of the amount of one hundred forty-one thousand five hundred eighteen pesos and thirty-four centavos (PhP 141,518.34), x x x.

Under the Terms and Conditions Governing the Issuance and Use of the BPI Credit and BPI Mastercard, the charges or balance thereof remaining unpaid after the payment due date indicated on the monthly Statement of Accounts shall bear interest at the rate of 3% per month and an additional penalty fee equivalent to another 3% per month. X x x.

For failure of petitioner Macalinao to settle her obligations, respondent BPI filed with the Metropolitan Trial Court (MeTC) of Makati City a complaint for a sum of money against her and her husband, Danilo SJ. Macalinao. This was raffled to Branch 66 of the MeTC and was docketed as Civil Case No. 84462 entitled Bank of the Philippine Islands vs. Spouses Ileana Dr. Macalinao and Danilo SJ. Macalinao.[5][5]
In said complaint, respondent BPI prayed for the payment of the amount of one hundred fifty-four thousand six hundred eight pesos and seventy-eight centavos (PhP 154,608.78) plus 3.25% finance charges and late payment charges equivalent to 6% of the amount due from February 29, 2004 and an amount equivalent to 25% of the total amount due as attorney’s fees, and of the cost of suit.[6][6]

After the summons and a copy of the complaint were served upon petitioner Macalinao and her husband, they failed to file their Answer.[7][7] Thus, respondent BPI moved that judgment be rendered in accordance with Section 6 of the Rule on Summary Procedure.[8][8] This was granted in an Order dated June 16, 2004.[9][9] Thereafter, respondent BPI submitted its documentary evidence.[10][10]
In its Decision dated August 2, 2004, the MeTC ruled in favor of respondent BPI and ordered petitioner Macalinao and her husband to pay the amount of PhP 141,518.34 plus interest and penalty charges of 2% per month, x x x.


Only petitioner Macalinao and her husband appealed to the Regional Trial Court (RTC) of Makati City, their recourse docketed as Civil Case No. 04-1153. In its Decision dated October 14, 2004, the RTC affirmed in toto the decision of the MeTC x x x.


Unconvinced, petitioner Macalinao filed a petition for review with the CA, which was docketed as CA-G.R. SP No. 92031. The CA affirmed with modification the Decision of the RTC x x x.

In its assailed decision, the CA held that the amount of PhP 141,518.34 (the amount sought to be satisfied in the demand letter of respondent BPI) is clearly not the result of the re-computation at the reduced interest rate as previous higher interest rates were already incorporated in the said amount. Thus, the said amount should not be made as basis in computing the total obligation of petitioner Macalinao. Further, the CA also emphasized that respondent BPI should not compound the interest in the instant case absent a stipulation to that effect. The CA also held, however, that the MeTC erred in modifying the amount of interest rate from 3% monthly to only 2% considering that petitioner Macalinao freely availed herself of the credit card facility offered by respondent BPI to the general public. It explained that contracts of adhesion are not invalid per se and are not entirely prohibited.

Petitioner Macalinao’s motion for reconsideration was denied by the CA in its Resolution dated November 21, 2006. Hence, petitioner Macalinao is now before this Court with the following assigned errors:

I.
THE REDUCTION OF INTEREST RATE, FROM 9.25% TO 2%, SHOULD BE UPHELD SINCE THE STIPULATED RATE OF INTEREST WAS UNCONSCIONABLE AND INIQUITOUS, AND THUS ILLEGAL.

II.
THE COURT OF APPEALS ARBITRARILY MODIFIED THE REDUCED RATE OF INTEREST FROM 2% TO 3%, CONTRARY TO THE TENOR OF ITS OWN DECISION.

III.
THE COURT A QUO, INSTEAD OF PROCEEDING WITH A RECOMPUTATION, SHOULD HAVE DISMISSED THE CASE FOR FAILURE OF RESPONDENT BPI TO PROVE THE CORRECT AMOUNT OF PETITIONER’S OBLIGATION, OR IN THE ALTERNATIVE, REMANDED THE CASE TO THE LOWER COURT FOR RESPONDENT BPI TO PRESENT PROOF OF THE CORRECT AMOUNT THEREOF.

Our Ruling

The petition is partly meritorious.

The Interest Rate and Penalty Charge of 3% Per Month or 36% Per Annum Should Be Reduced to 2% Per Month or 24% Per Annum

In its Complaint, respondent BPI originally imposed the interest and penalty charges at the rate of 9.25% per month or 111% per annum. This was declared as unconscionable by the lower courts for being clearly excessive, and was thus reduced to 2% per month or 24% per annum. On appeal, the CA modified the rate of interest and penalty charge and increased them to 3% per month or 36% per annum based on the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, which governs the transaction between petitioner Macalinao and respondent BPI.

In the instant petition, Macalinao claims that the interest rate and penalty charge of 3% per month imposed by the CA is iniquitous as the same translates to 36% per annum or thrice the legal rate of interest.[15][15] On the other hand, respondent BPI asserts that said interest rate and penalty charge are reasonable as the same are based on the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card.[16][16]

We find for petitioner. We are of the opinion that the interest rate and penalty charge of 3% per month should be equitably reduced to 2% per month or 24% per annum.
Indeed, in the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, there was a stipulation on the 3% interest rate. Nevertheless, it should be noted that this is not the first time that this Court has considered the interest rate of 36% per annum as excessive and unconscionable. We held in Chua vs. Timan:[17][17]

The stipulated interest rates of 7% and 5% per month imposed on respondents’ loans must be equitably reduced to 1% per month or 12% per annum. We need not unsettle the principle we had affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if not against the law.

While C.B. Circular No. 905-82, which took effect on January 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity, 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. (Emphasis supplied.)



Since the stipulation on the interest rate is void, it is as if there was no express contract thereon. Hence, courts may reduce the interest rate as reason and equity demand.[18][18]

The same is true with respect to the penalty charge. Notably, under the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, it was also stated therein that respondent BPI shall impose an additional penalty charge of 3% per month. Pertinently, Article 1229 of the Civil Code states:

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.

In exercising this power to determine what is iniquitous and unconscionable, 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.[19][19]
In the instant case, the records would reveal that petitioner Macalinao made partial payments to respondent BPI, as indicated in her Billing Statements.[20][20]

Further, the stipulated penalty charge of 3% per month or 36% per annum, in addition to regular interests, is indeed iniquitous and unconscionable.
Thus, under the circumstances, the Court finds it equitable to reduce the interest rate pegged by the CA at 1.5% monthly to 1% monthly and penalty charge fixed by the CA at 1.5% monthly to 1% monthly or a total of 2% per month or 24% per annum in line with the prevailing jurisprudence and in accordance with Art. 1229 of the Civil Code.

There Is No Basis for the Dismissal of the Case,

Much Less a Remand of the Same for Further Reception of Evidence


Petitioner Macalinao claims that the basis of the re-computation of the CA, that is, the amount of PhP 94,843.70 stated on the October 27, 2002 Statement of Account, was not the amount of the principal obligation. Thus, this allegedly necessitates a re-examination of the evidence presented by the parties. For this reason, petitioner Macalinao further contends that the dismissal of the case or its remand to the lower court would be a more appropriate disposition of the case.

Such contention is untenable. Based on the records, the summons and a copy of the complaint were served upon petitioner Macalinao and her husband on May 4, 2004. Nevertheless, they failed to file their Answer despite such service. Thus, respondent BPI moved that judgment be rendered accordingly.[21][21] Consequently, a decision was rendered by the MeTC on the basis of the evidence submitted by respondent BPI. This is in consonance with Sec. 6 of the Revised Rule on Summary Procedure, which states:

Sec. 6. Effect of failure to answer. — Should the defendant fail to answer the complaint within the period above provided, the court, motu proprio, or on motion of the plaintiff, shall render judgment as may be warranted by the facts alleged in the complaint and limited to what is prayed for therein: Provided, however, that the court may in its discretion reduce the amount of damages and attorney’s fees claimed for being excessive or otherwise unconscionable. This is without prejudice to the applicability of Section 3(c), Rule 10 of the Rules of Court, if there are two or more defendants. (As amended by the 1997 Rules of Civil Procedure; emphasis supplied.)


Considering the foregoing rule, respondent BPI should not be made to suffer for petitioner Macalinao’s failure to file an answer and concomitantly, to allow the latter to submit additional evidence by dismissing or remanding the case for further reception of evidence. Significantly, petitioner Macalinao herself admitted the existence of her obligation to respondent BPI, albeit with reservation as to the principal amount. Thus, a dismissal of the case would cause great injustice to respondent BPI. Similarly, a remand of the case for further reception of evidence would unduly prolong the proceedings of the instant case and render inutile the proceedings conducted before the lower courts.

Significantly, the CA correctly used the beginning balance of PhP 94,843.70 as basis for the re-computation of the interest considering that this was the first amount which appeared on the Statement of Account of petitioner Macalinao. There is no other amount on which the re-computation could be based, as can be gathered from the evidence on record. Furthermore, barring a showing that the factual findings complained of are totally devoid of support in the record or that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings must stand, for this Court is not expected or required to examine or contrast the evidence submitted by the parties.[22][22]

In view of the ruling that only 1% monthly interest and 1% penalty charge can be applied to the beginning balance of PhP 94,843.70, this Court finds the following computation more appropriate: x x x.

WHEREFORE, the petition is PARTLY GRANTED. The CA Decision dated June 30, 2006 in CA-G.R. SP No. 92031 is hereby MODIFIED with respect to the total amount due, interest rate, and penalty charge. Accordingly, petitioner Macalinao is ordered to pay respondent BPI the following:

(1) The amount of one hundred twelve thousand three hundred nine pesos and fifty-two centavos (PhP 112,309.52) plus interest and penalty charges of 2% per month from January 5, 2004 until fully paid;

(2) PhP 10,000 as and by way of attorney’s fees; and

(3) Cost of suit.

SO ORDERED.

x x x .