Swiping a card is easier than counting cash and coins in your wallet to pay for something. This ‘plastic money’ as they call it is a universal financial tool that lets you purchase anything you want, eat anything you want and travel anywhere you want.
It is a convenient way of purchasing goods or services be it online or in store. However, most of us, if not all, especially when financial crisis hit us, tend to plunge into credit card accountabilities. Thus, the nagging query: how to settle credit card debt in the Philippines.
“A credit card is a thin rectangular piece of plastic or metal issued by a bank or financial services company, that allows cardholders to borrow funds with which to pay for goods and services with merchants that accept cards for payment. Credit cards impose the condition that cardholders pay back the borrowed money, plus any applicable interest, as well as any additional agreed-upon charges, either in full by the billing date or over time as defined by investopedia.”1
Contractual Relationship | Contract of Adhesion [Take it or Leave it]
One of the advantages of having a credit card is convenience. It can be used anywhere especially if you do not have any cash on hand.
However, a disadvantage to this are overspending, interest charges and credit card fraud. Having a credit card means spending responsibly and paying bills on time.
Basically, the legal relationship of a credit card company and the cardholder is the same as a creditor and debtor. In essence, the cardholder or the debtor borrows money from the credit card company or the creditor to pay the merchant for goods and services purchased.
The agreement between them are contracts of adhesion which means that it was prepared by the credit card company and any issue or confusion on the interpretation or meaning of terms will be taken against the credit card company and in favor of the card holder.
How to Settle Credit Card Debt in the Philippines
We must determine first if the payor-debtor is in dire financial straits, or he just want to settle regularly his monthly or scheduled obligation without much to do with his capacity to pay his credit card debts.
In the second scenario, there seems to be no problem here, as the debtor has the capacity to satisfy his obligations to the credit card companies. He can avail of certain online payment channels being hosted, administered, and regulated by banks or other financial intermediaries or institutions.
Example of these are online payment bank platform i.e BDO and/or BPI online services, among others. Also, Gcash and Paymaya are online payment channels.
On the other hand, the debtor can pay personally by going to the bank or to bills payment stations, nearest to his or her residence.
The most crucial situation in this query is when the debtor cannot pay any more on a regular basis because of his or her financial situation.
In this regard, it is still best to communicate with the credit card companies whom you have and obligation to pay your accountabilities.
Expect that calls from the credit card company will increase on account of failure to settle on time. This is but just normal. Nonetheless, for those who may experience such, it can be annoying or vexatious at times.
Yet, the better approach should be to entertain the calls still. You should be courteous, though, in conversing with the bank representatives, as the calls may be an automated process, plus the fact that such conversation will be recorded.
Ask if they allow restructuring of the indebtedness or your account is qualified for an amnesty program. If you are, then, might as well explore that possibility or opportunity.
While under our fundamental law, no one shall be imprisoned for non-payment of debt; still, we have to honor our obligation in such a manner that is advantageous to both the creditors and you as a debtor. Try to haggle for a win-win situation.
To know your rights under the Access Devices Acts, you may continue reading this article.
Credit Card Association of the Philippines (CCAP)
The Credit Card Association of the Philippines (CCAP) is an association composed of seventeen credit card companies to maintain closer cooperation among them in the Philippines. It is founded to foster fellowship in the attainment of mutual and common interests.
In 2016, CCAP reported that 11 million credit cards have been issued to over 7 million cardholders in the Philippines, and pointed out that it is ready to increase penetration in the market by lowering the wage requirement for credit-card applications.2
Nonetheless, the CCAP stressed that 65 percent of point of sales in malls is still being transacted with the use of cash, while 35 percent is done with credit cards.
Based on a report in Business Mirror, CCAP mentioned that the Filipino consumers are now steering more toward using credit cards rather than cash.
The efforts of industry players in marketing credit cards and fleet cards to provide better financial services also contribute to the increase in the number of users of financial cards,3 which is also a result of increase in access points where credit cards can be used.
In addition, the CCAP also “calls for the issuance of a national identification system in the Philippines for easy access to information, which will determine the client’s capacity for repayment, the lack of which poses a challenge for credit-card issuance.” This is for better security and for easier know your client (KYC) identification process.4
Access Devices Regulation Act of 1998 [R. A. 8484]
The Access Devices Regulation Act of 1998 or Republic Act 8484 [RA 8484] is an act recognizing the recent advances in technology and the widespread use of access devices in commercial transactions.
It also regulates the issuance and use of access devices and prohibits the fraudulent acts committed relative thereto, among others.
In this Act, an access device is referred to as:
any card, plate, code, account number, electronic serial number, personal identification number, or other telecommunications service, equipment, or instrumental identifier, or other means of account access that can be used to obtain money, good, services, or any other thing of value or to initiate a transfer of funds (other than a transfer originated solely by paper instrument).5
Under Section 4 of the said Act,6 the following information of the credit card holder must be disclosed in writing or orally to open a credit card account under an open-end credit plan or solicitation either by mail, telephone or other means and shall disclose the following information:
“(a) Annual Percentage Rate
“1) Each annual percentage rate of interest on the amount of credit obtained by the credit card holder under such credit plan. Where an extension of credit is subject to a variable rate, the fact that the rate is variable, and the annual percentage rate in effect at the time of the mailing.
“2) Where more than one rate applies, the range of balances to which each rate applies.
“(b) Annual and other Fees
“1) Any annual fee, other periodic fee, or membership fee imposed for the issuance or availability of a credit card, including any account maintenance fee or any other charge imposed based on activity or inactivity for the account during the billing cycle.
“2) Any minimum finance charge imposed for each period during which any extension of credit which is subject to a finance charge is outstanding.
“3) Any transaction charge imposed in connection with use of the card to purchase goods or services.
“4) Any fee, penalty or surcharge imposed for the delay in payment of an account.
“(c) Balance Calculation Method
the name or a detailed explanation of the balance calculation method used in determining the balance upon which the finance charge is computed.
“(d) Cash Advance Fee
any fee imposed for an extension of credit in the form of cash.
any fee imposed in connection with an extension of credit in excess of the amount of credit authorized to be extended with respect to such amount: Provided, however, That in case the application or solicitation to open a credit card account for any person under an open-end consumer credit plan be made through catalogs, magazines, or other publications, the following additional information shall be disclosed:
“1) A statement, in a conspicuous and prominent location on the application or solicitation, that:
“i) the information is accurate as of the date the application or solicitation was printed;
“ii) the information contained in the application or solicitation is subject to change after such date;
“iii) the applicant should contact the creditor for information on any change in the information contained in the application or solicitation since it was printed;
“(2) The date the application or solicitation was printed; and
“(3) In a conspicuous and prominent location on the application or solicitation, a toll free telephone number or mailing address which the applicant may contact to obtain any change in the information provided in the application or solicitation since it was printed.”7
Disclosing this information is for the benefit of the applicant so that he or she is aware of the fees imposed by the credit card company.
It is important that the applicant knows:
- the annual percentage rate of interest;
- annual and other fees;
- the balance calculation method;
It is wise to know also about the cash advance fee in case the applicant wants to withdraw cash from Automated Teller Machines (ATM) and over-the-limit fee in case the applicant exceeded his or her credit limit.
An Act Regulating the Philippine Credit Card Industry
With the supervision of the Bangko Sentral ng Pilipinas (BSP), Republic Act 10870 or the “Philippine Credit Card Industry Regulation Law,”8, shall now govern all credit card issuers, acquirers and all credit card transactions.9
During the COVID Outbreak, credit card companies and banks offered a mandatory grace period or a payment extension for due dates for 30 days. This is to give leeway for those who are affected by COVID19. However, given this consideration, the 30 day grace period is still not enough to catch up with the finances, especially to those who got laid off from work and loss of income.
This moratorium necessarily increased credit card delinquency in the Philippines. Credit card delinquency is when there is default or non payment of dues or at least the minimum amount due within the due date for two billing cycles.
As reported by the Manila Bulletin, the credit card delinquency rate increased to 11. 5 percent which was more than two and a half times the level last 2019.10
No person shall be imprisoned for non-payment of debts
Generally, no one can be put to jail due to unpaid debt, according to the 1987 Constitution, Art II, Section 20.11 It is only civil in nature, meaning, only penalty and/or damages can be charged against someone who does not pay.
Credit cards are instruments or devices to facilitate and process credit transactions. These always ends up when someone will be indebted or will have an obligation to pay to another person, whether natural or juridical.
Credit card transactions usually result to pre-existing obligation, which an individual in whose favor the credit is given and/or payment advanced in his behalf by another person, has the obligation to pay subsequently the latter.
This will illustrate how a debt is created using credit cards. Hence, they are also instrument of indebtedness.
Cards Used in Fraudulent Transactions
Although, when credit cards are used fraudulently, it can be a basis for a criminal case.
As mentioned in RA 8484, Section 14,12 that:
A cardholder shall be prima facie presumed to have used his credit card with intent to defraud:
1] if he or she abandons or surreptitiously leaves the place of employment, business or residence stated in his application or credit card
2] if he or she did not inform the credit card company of the place where he could actually be found,
3] if at the time of such abandonment or surreptitious leaving, the outstanding and unpaid balance is past due for at least ninety (90) days and is more than Ten thousand pesos (P10,000.00)
Downside with Credit Cards
Drowning in credit card debt is despairing especially if the cardholder is going through a financial crisis. Sometimes, people think that running away from it will clear their obligations.
But that is not the case, missing to pay your credit card debt will accumulate and affect other financial transactions in the future. It will also give a negative credit score which will have an impact on future loans or other financial transactions.
Credit Cards – Collection Agencies
Debts are not just magically written off the records, though collection agencies may stop calling and sending letters, it does not mean that the debts are forgotten. These collection agencies are usually around for seven years13 where they usually call constantly and send letters requesting for the payment of credit card debt.
Collection agencies are those that are legally permitted to collect credit card debt on behalf of the credit card company, given that in the exercise of their rights and performance of duties, they must observe good faith and reasonable conduct and refrain from engaging in unscrupulous or untoward acts.14
According to BSP, MORB [Manual of Regulations for Banks],15 a bank is required to inform the credit card holder in writing that they are endorsing the collecting of debt to a third party collection agency.16
The notice must be given seven (7) days before the endorsement and must include the name of the collection agency and its contact information.
This same law also applies if they are transferring your account from one collection agency to another, so that you won’t be caught off guard by the debt collection agency contacting you.17
Payments should still be made through the bank or any authorized payment center and not through the collection agency.18
Accounts Becoming Delinquents | What to do
Accounts that become delinquent and you find that you cannot settle the debt as soon as possible, it is important that the credit card company is informed of the situation.
Credit card companies under CCAP offer an Inter Debt Relief Program which is a debt restructuring program wherein a payment scheme is followed with a lower interest rate and longer repayment term.
To qualify, the debt incurred must be existent for at least six months with an outstanding balance of Php 10,000 and a total balance of Php 100,000 from multiple credit cards from different banks.
The credit card provider with the highest outstanding balance shall be in charge of the processing of the amnesty application and coordinate with you regarding the application process.
Once amnesty is approved, it is the cardholder’s obligation to pay for the monthly amortization, missing to pay for two consecutive months will cancel the IDRP arrangement and amnesty cannot be re-applied.19
Currently, we may say that credit card is essential, especially at times when cash is not readily available. However, owning a credit card entails responsibility and good spending habits, without it you may be a credit card delinquent and be blacklisted by different credit card companies.
A good credit standing or credit score is a big deal especially for financial transactions since this is the basis of most bank institutions and lending companies. It is important to mark out due dates and always keep in mind that using a credit card is like borrowing money.
Between a creditor and a debtor, the obligation of a debtor shall be fulfilled since it will incur penalty and damages if left unpaid. Though a credit card delinquent may not be imprisoned, debt will never be forgotten.
Amnesty programs are offered by the credit card companies which could be useful in paying off debt little by little. Being debt free is also having financial freedom that every adult wants to reach.
- Investopedia, What is a Credit Card?
- PHL credit-card industry seen growing with new rules, tech
- CCAP: At the Forefront of Responsible Credit
- Access Devices Regulation Act of 1998. Sec.3[a]
- Republic Act No. 10870
- Section 3, Republic Act No. 10870
- Avoiding Card Delinquency
- “No person shall be imprisoned for debt or non-payment of poll tax.“
- How to avail of the Credit Amnesty Program in the Philippines
- 4301N.15, Manual of Regulation for Banks. BSP
- Manual of Regulations for Banks
- Payments and Collections
- BSP: Financial Education: Building Block for a Stronger Economy