Credit cards are imbued with public interest

By Atty. Eduardo T. Reyes III

 

            After emerging from the lockdown, people began to realize the debilitating effect of the total standstill of economic activity on their bank account. To be sure, people’s bank account passbooks registered more withdrawals than deposits, more outflows than inflows, while the stay-at-home edicts were in effect.

Not only that, but the cessation of business activity had also propelled consumers to use their credit cards for multifarious on-line purchases for food and other essentials to be delivered to their homes.

There is no denying therefore that credit cards had become ubiquitous. It would therefore be timely to reexamine the legal implications of credit-card usage as well as the questionable manner by which some credit card companies exact payments from their customers.

The nature of the credit card as a credit-facility  

“In credit card transactions, three contracts are entered into: 1. Contract of sale between the business establishment and the cardholder; 2. Contract of Loan between credit card holder and card issuer; and 3. Agreement of Accreditation between Business establishment and the credit card issuer. X x x Once a card-holder uses his card, it constitutes as an offer or application for a loan. Until then, there is no contract of loan yet because a contract of loan or mutuum is a REAL CONTRACT that is perfected only upon delivery of the loaned amount”. (See Art. 1316, New Civil Code and BANKARD, INC., v. LUZ P. ALARTE, G.R. No. 202573, April 19, 2017).

Given the scores of people that had banked on credit cards for their purchases especially during the lockdown, business had been undeniably good for the credit card companies.  With vaccines being rolled-out by leading pharmaceutical companies, private purchases for inoculation could also be facilitated by credit-card payments on-line. The magnitude of the use of the credit-facility therefore had made credit card companies as not mere private businesses which can only aim at maximizing profit unmindful of the public interest, but as affected with public interest.

Businesses affected with public interest

Jurisprudence considers the following businesses as impressed with public interest:

“1. Where the business is one, the following of which is not of right but is permitted by the state as a privilege or franchise. 2. Where the state on public grounds renders to the business a special assistance by taxation or otherwise. 3. Where for the accommodation of a business special use is allowed to be made of public property or of a public easement. 4. Where special privileges are granted in consideration of some special return to be made to the public; id., It brings it within the police power, but does not place it beyond the taxing power; (Flint v. Stine Tracy Co., 220 U.S. 140, 31 Sup. Ct. 342, 55 L. Ed. 389, Ann. Cas 1912B, 1312, as cited on p. 2765Bouvier’s Law Dictionary L-Z, Third Revision).

Assuredly, credit card companies are business ventures that are not unhinged from state regulation hence they fall within the parameters of businesses affected by public interest.

Still more, the “very reason for their existence” is the “use of the public” of their credit facility hence these credit card companies cannot argue that theirs is a business purely private in character. Thus, analogous to a restaurant business, which sheer existence is also the “access by the public”, the same was pronounced to be a public interest business by Justice William O. Douglas of the US Supreme Court by reasoning, that: “He found the claim that the restaurant was private property to be ill-founded because “access by the public is the very reason for its existence”. There was too great a nexus between a restaurant and the state in the form of licenses, permits, health regulations and the like for the owner to claim it as a purely private undertaking. (Justice William O. Douglas as cited on p. 114, Dissents and the Supreme Court by Urofsky)”.

Eyebrow raising mode of collection by credit-card companies

It is highly disturbing that some credit card companies farm out to collection firms the collection of their unpaid accounts. Usually, demand letters sent by these “collection firms” would include “attorney’s fees” as “expenses of collection”. But this is ethically and legally improper. This is because “attorney’s fees” are a form of damages that the judgment debtor must reimburse to the judgment creditor because the latter had spent for the fees of the lawyer it had engaged. But collection firms are not lawyers. This is because under Philippine law, law firms can be organized as partnerships but not as corporations. Proceeding from this reasonable presumption, the legal fee being charged will accrue in favor of the collection company which is a non-lawyer and thus legally obnoxious. Pursuant to Canon 9.02 of the Code of Professional Responsibility, “A lawyer shall not divide or stipulate to divide a fee for legal services with persons not licensed to practice law x x x”. Thus, no legal fee under the law can be payable to a non-lawyer.

Unconscionable Interest Rate

Consumers must further be guarded against “unreasonable, unconscionable and exorbitant interest rates. “In the consolidated cases of Rivera v. Sps. Chua and Sps. Chua v. Rivera, the Court affirmed the finding of the CA that 5% per month or 60% per annum interest rate is highly iniquitous and unreasonable; and since the interest rate agreed upon is void, the rate of interest should be 12% per annum (the then prevailing interest rate prescribed by the Central Bank of the Philippines for loans or forbearances of money) from the date of judicial or extrajudicial demand. (Atty. Leonardo Florent O. Bulatao v. Zenaida C. EstonactocG.R. No. 235020. December 10, 2019)

The Supreme Court had been very consistent in its recent rulings that hold that excessive and unreasonable interest rates must be stricken down, to wit:

“Article 1306 of the Civil Code provides that “[t]he contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.”

In Sps. Albos v. Sps. Embisan, et al., the Court held:

As case law instructs, the imposition of an unconscionable rate of interest on a money debt, even if knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an iniquitous deprivation of property, repulsive to the common sense of man.

It has no support in law, in principles of justice, or in the human conscience nor is there any reason whatsoever which may justify such imposition as righteous and as one that may be sustained within the sphere of public or private morals. Summarizing the jurisprudential trend towards this direction is the recent case of Castro v. Tan in which We held:

While we agree with petitioners that parties to a loan agreement have wide latitude to stipulate on any interest rate in view of the Central Bank Circular No. 905 s. 1982 which suspended the Usury Law ceiling on interest effective January 1, 1983, it is also worth stressing that interest rates whenever unconscionable may still be declared illegal. There is certainly nothing in said circular which grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.

In several cases, we have ruled that stipulations authorizing iniquitous or unconscionable interests are contrary to morals, if not against the law. In Medel v. Court of Appeals, we annulled a stipulated 5.5% per month or 66% per annum interest on a P500,000.00 loan and a 6% per month or 72% per annum interest on a P60,000.00 loan, respectively, for being excessive, iniquitous, unconscionable and exorbitant. In Ruiz v. Court of Appeals, we declared a 3% monthly interest imposed on four separate loans to be excessive. In both cases, the interest rates were reduced to 12% per annum.

In this case, the 5% monthly interest rate, or 60% per annum, compounded monthly, stipulated in the Kasulatan is even higher than the 3% monthly interest rate imposed in the Ruiz case. Thus, we similarly hold the 5% monthly interest to be excessive, iniquitous, unconscionable and exorbitant, contrary to morals, and the law. It is therefore void ab initio for being violative of Article 1306 of the Civil Code. With this, and in accord with the Medel and Ruiz cases, we hold that the Court of Appeals correctly imposed the legal interest of 12% per annum in place of the excessive interest stipulated in the Kasulatan.  (Citations omitted).  (Rosemarie Q. Rey v. Cesar G. Anson, G.R. No. 211206, November 7, 2018).

In a time of pandemic, one which hardly a living soul today had previously experienced in history, the very fabric of humanity is under attack. The answer to this should be the exercise of more humanity, not less. Exacting a “pound of flesh” is surely a less humanitarian way of doing business.

The government being “the omnipresent teacher”, must step in and take more affirmative action to protect its people, and keep humanity intact.

(The author is the senior partner of ET Reyes III & Associates- a law firm based in Iloilo City. He is a litigation attorney, a law professor and a law book author. His website is etriiilaw.com).