Coverage: credit cards and BSP-supervised lending
- The Circular governs banks/quasi-banks with credit card operations and their subsidiary or affiliate credit card companies.
- The Circular applies to credit card transactions handled by these institutions and their credit card companies.
- The Circular also extends key credit card standards to other lending operations of all BSP-supervised institutions, other than pawnshops.
- The “other lending operations” extension covers the same substantive areas of: credit risk assessment and applicant information validation, unfair collection practice rules, and confidentiality of information rules.
- Pawnshops are excluded from the extension to other lending operations.
Definitions and scope rules adopted by amendment
- Item ada in the relevant internal policies/procedures requirement provisions is deleted.
- Pre-approved credit cards are expressly prohibited from issuance by regulated banks/quasi-banks and their subsidiary/affiliate credit card companies.
- Minimum requirements before issuing credit cards are strengthened through mandatory diligence and structured credit-limit basis.
- Third-party-solicited applications are required to undergo validated/verified processing by authorized personnel other than marketing.
Consumer-protection: credit card issuance rules
- Banks/quasi-banks and their subsidiary or affiliate credit card companies shall not issue pre-approved credit cards.
- Before issuing credit cards, they must exercise proper diligence by ascertaining that applicants possess good credit standing and are financially capable of fulfilling credit commitments.
- Credit limits must be based on determining and using:
- the net take home pay of employed applicants; or
- the net monthly receipts of applicants engaged in trade or business; or
- the net worth or cash flow inferred from deposits of applicants who are neither employed nor engaged in trade or business; and/or
- the credit behavior shown by the applicant from other existing credit cards; and/or
- lifestyle indicators such as, but not limited to, club memberships, ownership and location of residence, and motor vehicle ownership.
- Banks/quasi-banks may use gross monthly income, provided reasonable deductions are estimated for income taxes, premium contributions, loan amortizations, and other deductions.
- All credit card applications, specifically those solicited by third party representatives/agents, must undergo a strict credit risk assessment process.
- Information stated in the application must be validated and verified by authorized personnel of the banks/quasi-banks and their subsidiary/affiliate credit card companies, other than those handling marketing.
Consumer-protection: required disclosures to cardholders
- Banks/quasi-banks and their subsidiary or affiliate credit card companies must provide additional disclosure information to cardholders beyond the full disclosure already found in the terms and conditions of the credit card agreement in the application and billing materials.
- The required additional disclosure must include a table of the applicable fees, penalties and interest rates on credit card transactions, including:
- the period covered by them; and
- the manner of and reason for the imposition of such penalties, fees and interests.
- The table must also include fees and applicable conversion reference rates for third currency transactions.
- The fees/penalties/interest-rate table and other required fee-related disclosures must be made available in plain sight and language on marketing materials such as brochures, flyers, primers and advertising materials, on credit card application forms, and on credit card billing statements.
- The Circular requires a reminder in the monthly billing statement (or equivalent document) that paying only the minimum amount due or any amount less than the total amount due for the billing cycle/period would mean the imposition of interest and/or other charges.
- The disclosure table and reminder must be printed in plain language and in bold black letters against a light or white background, using the minimum Arial 12 theme font and size (or its equivalent in readability), and must appear on the first page if the applicable document has more than one page.
Consumer-protection: unfair collection practices limits
- Banks/quasi-banks and their subsidiary/affiliate credit card companies must inform cardholders in writing at least seven (7) days prior to actual endorsement of:
- the endorsement of the account to a collection agency/agent, or
- the endorsement of the account from one collection agency/agent to another.
- The written notification must include the full name of the collection agency and its contact details.
- The Circular requires that the required notification in writing be included in the terms and conditions of the credit card agreement.
- Banks/quasi-banks and their subsidiary/affiliate credit card companies must adopt policies and procedures ensuring that collection personnel—whether in-house collectors or third-party collection agents—must disclose his/her full name/true identity to the cardholder.
- The unfair collection practices regulations are extended to other lending operations of BSP-supervised institutions, other than pawnshops.
Applicability to other lending operations
- For other lending operations of all BSP-supervised institutions (excluding pawnshops), the following are added/applicable:
- the rules on minimum requirements before issuing credit cards, covering Section 3 of the Circular except for Item a2 thereof, which are added as Subsection X304.10 of the MORB and corresponding amendments in the MORNBFI; and
- the unfair collection practices rules under Subsection X320.14 of the MORB, as amended by Section 4 of the Circular, which are added as Subsection X304.11 of the MORB and corresponding amendments in the MORNBFI; and
- the confidentiality-of-information requirement under Subsection X320.9 of the MORB, added as Subsection X304.12 of the MORB and corresponding amendments in the MORNBFI.
Sanctions for violations
- Violations of any provision of the Circular are subject to sanctions depending on severity.
- For a first offense, the penalty is reprimand for the directors/officers responsible for the violation.
- For a second offense, the bank concerned is subject to disqualification from the credit facilities of the BSP, except as may be allowed under Section 84 of R.A. No. 7653.
- For subsequent offenses, the bank concerned faces:
- a prohibition on extending additional credit accommodation against personal security; and
- the penalties and sanctions under Sections 36 and 37 of R.A. No. 7653.
Interaction with other laws
- Credit card transactions are covered not only by banking laws and BSP regulations but also by other laws such as Republic Act No. 7394 (Consumer Act of the Philippines) and Republic Act No. 8484 (Access Devices Regulation Act).