“Iniquitous and unconscionable” credit card penalties

Credit card companies usually collect interest and finance charges from cardholders who do not pay the outstanding balance in full. It is not unusual for credit card companies to collect interest at the rate of 3% per month (or 36% per annum), in addition to finance charges that are also computed on a monthly basis.

In Ileana Dr. Macalino vs. Bank of the Philippines Islands, G.R. No. 175490, September 17, 2009, the terms and conditions for the use of the credit card provide that balances remaining unpaid after the payment due date indicated on the monthly Statement of Account will bear interest at the rate of 3% per month, plus an additional penalty fee equivalent to another 3% per month.

The Supreme Court ruled that the interest rate and penalty charge of 3% per month should be equitably reduced to 2% per month or 24% per annum. With respect to the interest rate, the Supreme Court stated:

We find for petitioner. We are of the opinion that the interest rate and penalty charge of 3% per month should be equitably reduced to 2% per month or 24% per annum.

Indeed, in the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, there was a stipulation on the 3% interest rate. Nevertheless, it should be noted that this is not the first time that this Court has considered the interest rate of 36% per annum as excessive and unconscionable. . .

Since the stipulation on the interest rate is void, it is as if there was no express contract thereon. Hence, courts may reduce the interest rate as reason and equity demand.

With respect to the penalty charge, the Supreme Court ruled:

The same is true with respect to the penalty charge. Notably, under the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, it was also stated therein that respondent BPI shall impose an additional penalty charge of 3% per month. Pertinently, Article 1229 of the Civil Code states:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.

In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of each case since what may be iniquitous and unconscionable in one may be totally just and equitable in another.

In the instant case, the records would reveal that petitioner Macalinao made partial payments to respondent BPI, as indicated in her Billing Statements. Further, the stipulated penalty charge of 3% per month or 36% per annum, in addition to regular interests, is indeed iniquitous and unconscionable.

Given the foregoing, the Supreme Court reduced the interest and penalty payable as follows:

Thus, under the circumstances, the Court finds it equitable to reduce the interest rate pegged by the CA at 1.5% monthly to 1% monthly and penalty charge fixed by the CA at 1.5% monthly to 1% monthly or a total of 2% per month or 24% per annum in line with the prevailing jurisprudence and in accordance with Art. 1229 of the Civil Code.

Advertisements