Pre-Approved Credit Cards: Consent to Terms Must Be Proven

Spouses Rainier Jose M. Yulo and Juliet L. Yulo were issued pre-approved credit cards by the Bank of the Philippine Islands (BPI). They used the cards, fell behind on payments, and were sued for the outstanding balance plus steep penalties. The Supreme Court's ruling in Yulo v. Bank of the Philippine Islands (G.R. No. 217044, January 16, 2019) clarifies a crucial point: when a bank issues a pre-approved credit card without a signed application, it must prove the cardholder actually read and consented to the Terms and Conditions. If it cannot, the cardholder is bound only to pay the principal debt with legal interest—not the contractual penalties.

The Facts

BPI issued Rainier a pre-approved credit card in October 2006, and Juliet received a supplementary card. The spouses used the cards regularly and initially paid their bills. By July 2008, however, they became delinquent. BPI sent demand letters and eventually filed a collection suit. The Metropolitan Trial Court ruled in BPI's favor, ordering the spouses to pay P229,378.68 plus 3% monthly interest and 3% monthly penalty, later reduced to 1% each. The Regional Trial Court and Court of Appeals affirmed. The spouses appealed to the Supreme Court.

The Issue

The central question was whether the Yulo spouses were bound by the Terms and Conditions governing the use of their pre-approved credit cards. The spouses argued that BPI never proved they consented to those terms—no application form was signed, and the Terms and Conditions document was never even presented in evidence.

The Ruling

The Supreme Court partially granted the petition. It held that with pre-approved or pre-screened credit cards, the usual application process is dispensed with. The card is issued outright, and the recipient may accept or reject it. Unlike a card obtained through a signed application—where consent to the terms is explicit—a pre-approved cardholder's consent is not immediately apparent. Therefore, the bank bears the burden of proving that the client read and agreed to the Terms and Conditions.

BPI presented a Delivery Receipt showing that Rainier's alleged "authorized representative," Jessica Baitan, received the credit card packet. But the receipt did not indicate Baitan's relationship to Rainier, and BPI failed to prove she was authorized to act for him. The Court noted that the check mark beside "Authorized Representative" was self-serving and insufficient. Without proof of an agency relationship, and without evidence that Rainier read and consented to the Terms and Conditions, the spouses could not be bound by those provisions.

The Effect: Legal Interest Only

Although the spouses were not bound by the contractual penalties, they were still liable for the amounts they actually charged. The Court applied the principle from Alcaraz v. Court of Appeals: when a bank fails to prove consent to the terms, the cardholder may be charged only with legal interest on the obligation. The Court deducted P9,321.17 in finance charges, penalties, and interests from the outstanding balance, reducing it to P220,057.51. This amount was subjected to 12% legal interest per annum from the date of the first demand (November 11, 2008) until June 30, 2013, and 6% per annum thereafter, following Nacar v. Gallery Frames. The award of P15,000 in attorney's fees was also deleted for lack of factual or legal justification.

Practical Takeaways

• Banks must prove consent for pre-approved cards. Without a signed application or clear evidence that the cardholder read and agreed to the Terms and Conditions, the bank cannot enforce contractual interest and penalties.
• A delivery receipt is not enough. A receipt showing someone received the card packet does not prove that the recipient was authorized to act for the cardholder, nor that the cardholder consented to the terms.
• Using the card creates liability—but only for the principal. A cardholder who uses a pre-approved card must pay for the purchases made, but only with legal interest if consent to the terms is not proven.
• Statements of account are not the source of liability. They merely reflect transactions. The obligation arises from the actual use of the credit card.
• Attorney's fees require justification. Courts must state the factual and legal basis for awarding attorney's fees; a bare declaration that the award is "just and equitable" is insufficient.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.