China’s central bank removed the upper and lower limits on credit card interest rates starting Jan. 1 as part of a strategic move to let markets set rates. The measure could foster greater competition between conventional banks and fintech rivals, lowering costs for borrowers, industry experts said, reported Caixin.
Under the new policy, credit card issuers can set their own interest rates for unpaid monthly balances, also known as overdrafts. Previously, the upper limit was a daily interest rate of 0.05%, equivalent to an annualized rate of 18.25%, and the lower limit was 0.7 times the upper limit, or an annualized 12.775%.
The move is a signal that regulators are trying to help credit cards regain mainstream status in the consumer credit market, analysts said. Removal of the interest rate caps will have little impact on bigger credit card providers but is expected to benefit smaller issuers, a credit card executive at a big bank told Caixin.