TL;DR

The Supreme Court of the Philippines clarified that excessively high interest rates and late payment charges imposed by credit card companies can be deemed unconscionable and therefore legally unenforceable. In Uysipuo v. RCBC Bankard Services Corporation, the Court reduced the exorbitant interest and penalty charges initially imposed on Bryan Uysipuo’s credit card debt, adjusting them to the legal interest rate. Furthermore, the Court rectified the lower courts’ varying assessments of the principal obligation, establishing a definitive amount based on the evidence. This ruling protects consumers from predatory lending practices by ensuring that interest rates are fair and reasonable, and that principal debts are accurately calculated.

The Case of the Escalating Debt: Finding Fairness in Credit Card Charges

This case revolves around Bryan Uysipuo’s credit card debt with RCBC Bankard Services Corporation. Uysipuo contested the ballooning amount of his debt, arguing that the imposed interest rates and late payment charges were illegally high. The lower courts differed in their rulings, particularly on the principal amount owed and the applicable interest rates. This brought the issue to the Supreme Court, which had to determine whether the charges imposed by RCBC were unconscionable and to clarify the correct computation of Uysipuo’s obligation.

The heart of the legal matter lay in the stipulated interest and penalty charges in RCBC’s credit card terms and conditions. These were set at a monthly interest rate of 3.5% and a late payment charge of 7%. While Philippine law upholds the principle of freedom to contract, allowing parties to agree on interest rates, this freedom is not absolute. The Civil Code, while not explicitly defining ‘unconscionable interest,’ allows courts to intervene when stipulated interest rates are deemed excessive and violate public policy. As the Supreme Court has consistently held, interest rates that are ‘iniquitous, unconscionable, and exorbitant’ may be equitably reduced.

The Court differentiated between monetary interest, which is compensation for the use of money, and compensatory interest, which is imposed as damages for delay or failure to pay. In credit card agreements, both the monthly interest and late payment charges are considered monetary interest as they compensate the credit card company for extending credit. The Court scrutinized the stipulated rates against the backdrop of established jurisprudence, recognizing that rates significantly exceeding prevailing legal rates, or those that ‘shock the conscience,’ are deemed unconscionable.

In Uysipuo’s case, both the Regional Trial Court (RTC) and the Court of Appeals (CA) acknowledged the excessive nature of the stipulated rates, reducing them. However, the Supreme Court refined the application. It emphasized that when interest rates are invalidated for being unconscionable, the agreement to pay interest remains, but the specified rate is nullified. In such instances, the legal rate of interest at the time the agreement was made becomes applicable. This legal rate serves as the presumptive reasonable compensation for the use of borrowed money.

The Court also addressed the conflicting factual findings of the lower courts regarding the principal obligation. While generally factual findings of lower courts are binding, the Supreme Court can re-evaluate these when discrepancies arise. After reviewing the provided statement of account, the Supreme Court determined the principal obligation to be ₱1,211,000.33, correcting the CA’s finding of ₱787,500.00 and the RTC’s initial assessment of ₱1,757,024.53, which included the unconscionable charges. The Court presented a detailed table from the CA’s summary of account statements:

Statement Date	Previous Balance	Purchases	Payments	Interest/ Fees/ Charges	Late Charges	Balance Due
05/10/2009	P116,716.00	P631,535.68	P116,716.00			P631,535.68
06/08/2009	P631,535.68	P787,500.00	P631,535.68			P787,500.00
07/08/2009	P787,500.00	P787,500.00	P787,500.00			P787,500.00
08/09/2009	P787,500.00	P264,738.50	P265,000.00	P32,238.17		P819,476.67
09/08/2009	P819,476.67	P1,083,500.00	P864,000.00			P1,038,976.67
10/08/2009	P1,038,976.67	P1,280,000.00	P1,075,738.17			P1,243,238.50
11/08/2009	P1,243,238.50			P58,615.28	P4,351.34	P1,306,205.12
12/08/2009	P1,306,205.12			P45,770.01	P8,994.86	P1,360,969.99
01/10/2010	P1,360,969.99			P52,511.34	P13,906.69	P1,427,388.02
02/08/2010	P1,427,388.02			P52,016.56	P19,132.05	P1,498,536.63
03/08/2010	P1,498,536.63			P48,981.40	P24,692.64	P1,572,210.67
04/08/2010	P1,572,210.67			P57,004.89	P30,602.81	P1,659,818.37
05/09/2010	P1,659,818.37			P60,289.00	P36,917.16	P1,757,024.53

The Supreme Court then specified the applicable interest rates. For monetary interest on the principal obligation, it imposed 12% per annum from the date of extrajudicial demand (November 26, 2010) until full payment. Additionally, compensatory interest at 12% per annum was set for the accrued monetary interest from the date of judicial demand (December 15, 2010) until June 30, 2013, and thereafter at 6% per annum until full payment. Lastly, the attorney’s fees of ₱50,000.00 would also accrue legal interest at 6% per annum from the finality of the decision until fully paid. These adjustments reflect the Court’s commitment to balancing contractual freedom with the need to protect consumers from oppressive financial burdens.

FAQs

For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Uysipuo v. RCBC Bankard Services Corporation, G.R. No. 248898, September 07, 2020