The BSP approved the standardized accounting treatment for credit card receivables together with the basis for determining accounts considered past due to enable tighter monitoring of the industry.
BSP Governor Rafael B. Buenaventura said banks will be required to follow prudent credit standards where loans that were past due for 181 days or more would have to be fully provisioned or written off.
Buenaventura said the guidelines also require better disclosure especially of finance charges and method of computation as well as the effective interest rates and other fees and charges.
The guidelines also prescribed the parameters for the collection of delinquency charges, suspension, termination and reactivation of credit cards as well as the mechanism for handing costumer complaints.
The BSP also revised the aging of credit card receivables to align local practices with international standards, a move that would have the effect of tightening up the issuance and management of credit cards in the country.
The revision of the aging structure of credit card receivables would also allow banks and credit card companies to write off uncollectible receivables after 180 days while receivables that have not been collected within 90 days would be considered past due.
BSP Deputy Governor Alberto Reyes said the adjustment would bring the local practice at par with international standards that have been tailor-made specifically for credit cards.
According to Reyes, the country’s aging structure for credit card receivables are based on the structure applied on regular loan accounts of banks. "We patterned it to installment receivables," he said.
The changes, Reyes pointed out, would only acknowledge the differences between the two and incorporate the peculiarities of credit card loans.
"We have to determine the generally acceptable reckoning for past due receivables and definitely, there will be an aging formula," Reyes said. "This will help clean up the receivables of the industry."
Based on generally accepted international practices, Reyes said credit card receivables that have not been collected beyond 180 days are written off immediately.
This means that banks and credit card companies have to make provisions for past due receivables but it would also mean that credit card holders could no longer dally on payments.
However, Reyes admitted that that the BSP has to consider the complexities that now prevail in the credit card industry and factor these into the policy guidelines under consideration.
"One thing we would have to consider is the common practice of banks these days to allow, say, 12-month installments that allow credit card borrowers to service their debts in small increments," he said.
On the other hand, Reyes said the BSP is still studying the proposal of credit card companies to lower the three percent interest charge to attract more subscribers despite efforts to impose more stringent requirements on the issuance of new cards.
Alarmed by the increase in delinquent credit card accounts, the BSP had began requiring credit card companies to screen card holders and set the credit limit based on their net take-home pay.
Reyes told reporters that the Credit Card Association had reported having complied with the new BSP requirements but the industry is also studying the possibility of lowering interest charges and penalty charges on card borrowing.
According to Reyes, credit card companies want to lower the interest rate in an attempt to make the service cheaper for existing card holders.
At present, card holders paying on time but on installment basis are charged with a three percent interest charge on their principal. If they are overdue, they pay penalty charges.
The BSP has already imposed stricter screening requirements for new subscribers, adding a provision in the central bank’s manual of regulations that would tighten the qualifications for new credit card holders by factoring in their actual take-home pay.
Under the old regulations, banks and their subsidiary credit card companies are not required to look at their customers‚ net take-home pay.
Reyes said the Monetary Board is still reviewing a set of more drastic steps that would make it harder for consumers to obtain credit cards.