ON USURY, INTEREST RATE CAP, AND TAX ON FOREIGN REMITTANCE
The Philippine Star
04/0111

One of our readers, Zaide Capistrano, has asked about an anti-usury law after reading our last column “Capping Credit Card Charges.” Here is some background information in response to Capistrano’s query and for the benefit of other interested readers:

There was a Usury Law enacted in 1916, (also known as Act 2655). This was amended by Presidential Decree No. 116, which set the maximum rate of loan interests at 12 percent per annum. Any charge over the 12 percent rate was regarded as usurious.

In December of 1982, however, the Central Bank of the Philippines (before it was renamed Bangko Sentral ng Pilipinas) issued Circular No. 905 effectively suspending the law by removing the ceiling on interest rates.  

Thus, banks and other lending individuals, groups or institutions may generally charge more than 12 percent per year. Any abuse on high interest rate lending, however, is tempered by cases filed in court where on some occasions it ruled against lenders that exhibited “unconscionable” interest rates.

There is a group called Advocates for Truth in Lending, Inc. that filed a petition for certiorari with the Supreme Court last year seeking to void the central bank’s almost three-decade-old ruling.

Cap on credit card charges

Recently, our lawmakers have introduced several bills in the upper and lower houses that propose for a cap specifically on credit card debt. This is almost similar to actions taken by the legislative body in the United States.

These bills providing for a cap on credit card charges are still pending in the House of Representative as our legislators have been distracted by the media focus on hearings regarding alleged AFP corruption and, of course, the main show, the impeachment of the Ombudsman Merceditas Gutierrez.

Credit card oligopoly

One other reader, Manuel Cantos, has written his reactions to my earlier column on credit card issues. Here is what he says:

“I agree with your views from the perspective of resource allocation. Capping interest rates will release loanable funds to more productive sectors, e.g., MSMEs. Furthermore, where credit is scarce, expect interest rates to rise; where it's plentiful, interest rates fall.

“But not credit card interest rates which remain at 3.5 percent per annum whether funds are aplenty or scarce. The BSP and CCAP [Credit Card Association of the Philippines] attribute this phenomenon to market forces!?!

“In contrast, domestic oil prices rise or fall depending on international oil prices. Now, that's market forces. How many kinds of market forces are there anyway?

“Is there one for commodities traded internationally, another for credit card interest rates, at least for the Philippines? Isn't there an oligopoly among local credit card companies?

“I also agree that capping interest rates on grounds of efficiency in credit allocation and utilization as it will compel banks and credit card companies to be more prudent in approving credit card applications.”

Another view on suggested foreigners’ remittance tax

Last week, we featured a letter by one of our readers, David Laibow, who had strongly urged for the imposition of a 3-percent tax on inward remittances to the Philippines by foreign residents. He was basically suggesting that government should tax foreigners living in the Philippines who receive monthly pensions from their respective governments.

On the same day that the letter was printed in The Philippine Star, we received a letter from Gerard Bernard, another foreigner who has chosen to retire in our country. He writes:

“I would like to take exception to the American resident who has proposed a 3 percent tax on non-citizens.

“I am about the same age (born 1939) and nationality (American) as the author of [the featured letter] with the exception that I most likely have resided much longer here (2002) and have witnessed much of the government handout program abuse as well as charity activities of foreigners. I am also a member of the PRA (Philippine Retirement Authority).

“I do agree with the author that charity should be an active instinct for all that has been given more. I also agree with the author that one of the most important charitable areas here in the Philippines is education.

“However, having said that, I totally disagree with the concept for the following reasons:

“1) Discrimination.

“2) PRA should be against this idea because it is de-motivating for retirees to select the Philippines as a retirement haven.

“3) Non-citizens infuse cash into the economy in many other ways.

“4) Government corruption precludes effective distribution. Certainly a preferred charitable method is donating directly to the students/schools.

“5) There is a presumption in the article that non-citizens are not contributing to charitable projects including education; this is far from the truth.

“6) Truth be known that any of us married to a citizen (me included) also married the family as well and are actively providing educational, medical, housing etc assistance willingly.

“7) Lastly, after re-reading the article I came away with the feeling that the author has not been residing here very long and there is a hint of naivety and perhaps, some arrogance regarding amounts of donations.

“Thanks for allowing me to share another American opinion.”

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, SalcedoVillage, 1227 MakatiCity. Or e-mail me at reydgamboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net