Understanding credit card transactions

In this era of heightened consumer spending (otherwise known as “revenge spending”), there has been a notable increase in the number of credit card transactions registered in the Philippine financial system.

Under the law, a credit card refers to any card or other credit device intended to obtain money, property, or services on credit. On the other hand, a credit card issuer refers to the bank or corporation that offers the use of its credit card (Sec. 5 (g to h) of Republic Act 10870).

This raises the question of the legal implications that arise whenever one swipes and enters into a credit card transaction.

In the case of Rico v. Union Bank of the Philippines (G.R. 210928, 14 February 2022), the Supreme Court discusses that every credit card transaction involves three contracts, namely:

1. Sales contract between the credit card holder and the merchant or the business establishment that accepted the credit card. When the credit card holder uses his or her credit card to pay for purchases, an offer to enter into a loan agreement with the credit card issuer is made;
2. Loan agreement between the credit card issuer and the credit card holder. This is a debtor-creditor relation that arises only after the credit card issuer has approved the credit card holder’s purchase request. Only when the credit card issuer approves the purchase request does this binding loan agreement come into effect; and
3. Promise to pay between the credit card issuer and the merchant or business establishment. It was noted that the debt incurred in a credit card transaction is discharged only when the merchant receives payment from the card issuer.
Now, does a credit card issuer have the obligation to approve all the purchase requests made by the credit card holder?
The answer is no. The Supreme Court, in Rico v. Union Bank of the Philippines, held that while a credit card issuer grants a “credit facility or a pre-approved amount which the cardholder may use in his purchase of goods and services, this is not a demandable right which the cardholder may hold against the credit card company as if he is entitled to be granted a loan whenever he or she wants, or that the bank owes him or her money by the mere issuance of a credit card.”

Consequently, a credit card issuer may or may not approve purchase requests based on the credit card holder’s standing, credit card history, and financial capability. However, for the benefit of the credit card holder, the credit card issuer is usually bound by the terms and conditions of the credit card membership agreement that was entered into with the credit card holder.

As such, it pays dividends to read the fine print stated in the terms and conditions when one acquires a credit card. One can avoid any credit card problems and mishaps by paying their dues on time and by abiding by the written stipulations of the credit card membership agreement. Knowing your rights and obligations under these contracts will also help you determine whether a credit card issuer has wronged you or got carried away by your own negligence.

For more of Dean Nilo Divina’s legal tidbits, please visit www.divinalaw.com. For comments and questions, please send an email to cabdo@divinalaw.com.

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