AT THE weekend, I wade through acres of newsprint in one of our fine national broadsheets to locate some interesting and challenging Sudoku variants.
Yesterday, my search was deflected by a bizarre headline in the financial section. It said: ‘High 3 percent cap on, credit card transactions starts next month.’ Yikes!
It gets worse.
‘BSP Governor Felipe Medalla said that central bank’s Monetary Board issued Resolution No. 55 last Jan 13 the maximum interest rate or finance charge imposed on a cardholder’s unpaid outstanding credit card balance by 100 basis points (one percent) to three percent from two percent per month or 36 percent per annum.’
My first reaction was that the journalist who wrote this does not know the difference between simple and compound interest. I later realized that it is BSP who does not know the difference.
Credit card companies apply a charge on the customer’s outstanding balance each month. This means that the annual percentage rate of charge is three percent compounded monthly.
This means 36 percent per annum. Right?
Wrong.
Three percent applied on the monthly outstanding balance is 42.6 percent per annum (due to charging interest on the interest).
Similarly, when the applied interest was ‘only’ two percent, the annual percentage rate of charge is 26.82 percent and not 24 percent.
‘Similarly, Medalla said that maximum processing fee on the availment of credit card cash advances remained at P200 per transaction.’ Very gracious.
I seriously wonder if BSP is a prudent organization, funded by the taxpayer, to ensure that the hapless bank customer is protected from usurious practices of the banking sector.
‘The BSP imposed a cap on all credit card transactions as a temporary relief measure to ease the financial burden of consumers from the COVID-19 pandemic and promote affordable access to credit.’
‘Medalla said the higher cap would help banks and credit card issuers cover higher costs related to the efficient handling of consumer transactions, including prompt and timely dispute resolution, as well as, the retention of competent personnel.’
Medalla should consult BSP’s former Legal Officer Atty Noel Neil Q. Malimban to confirm this is untrue.
As John McEnroe used to say: ‘You cannot be serious.’/PN
