The Securities and Exchange Commission (SEC) said Thursday it has released the draft memorandum circular for the implementing of the cap on interest rates and other fees imposed by lending and financing companies, and their online lending platforms (OLPs).
In a statement, the SEC said the proposed guidelines, released on January 27 for public comment, will operationalize Bangko Sentral ng Pilipinas (BSP) Circular No. 1133 Series of 2021, which prescribes the maximum interest rates and other fees charged by lending and financing companies, and their OLPs.
Earlier, the central bank capped the maximum nominal interest rate at 6% per month, or about 0.2% per day, and the effective interest rate (EIR) at 15% per month, or about 0.5% per day for covered loans which are unsecured, general-purpose loans that do not exceed the amount of P10,000 and with a loan tenor of up to four months.
EIR is expressed as the rate that exactly discounts estimated future cash flows throughout the life of the loan to the net amount of loan proceeds.
Also, the EIR includes the nominal interest rate along with other applicable fees and charges, such as processing fees, service fees, notarial fees, handling fees, and verification fees, among others.
It excludes fees and penalties for late payment and non-payment.
Moreover, lending and financing companies may only charge up to 5% per month for late payment on outstanding scheduled amounts due.
A total cost cap of 100% of the total amount borrowed, applying to all interest, other fees and charges, and penalties, regardless of time the loan has been outstanding, will also be imposed.
Under the draft SEC memorandum circular, the cap on interest rates and other fees will apply to covered loans which lending and financing companies will offer once the proposed rules take effect, the corporate regulator said.
Moreover, the SEC said that it has 60 business days from January 3, 2022 when BSP Circular No. 1133, Series of 2021 took effect, to promulgate the rules and regulations implementing the cap on interest rates and other charges imposed by lending and financing companies, and their OLPs.
Lending companies who fail to comply with the rate limits will be subject to penalties worth P25,000 and P50,000 for the first and second offense, respectively, while financing companies will be penalized for P50,000 for the first offense and P100,000 for the second offense, the corporate regulator said.
The penalty for the third offense for both lending and financing companies will amount to twice the amount imposed for the second offense up to P1 million; the suspension of their financing and lending activities for 60 days; or the revocation of their Certificates of Authority to Operate as a Financing/Lending Company (CAs), it added.
Likewise, the SEC is requiring all lending and financing companies to submit an Impact Evaluation Report on or before January 15 of each year following the imposition of the rate caps.
Noncompliance will entail a penalty of P10,000 plus P200 daily for financing companies and P10,000 plus P100 daily for lending companies, it said.
The second and third offense will lead to the suspension and revocation of their CAs, respectively, it added.
The Impact Evaluation Report will form part of the reports that the SEC shall submit to the BSP within one year from the implementation of the cap on interest rates and other charges imposed by lending and financing companies.
In turn, the BSP will take into account the Commission’s reports in reviewing the policy, which is intended as a time-bound relief measure for the unbanked and underserved segment of the population amid the pandemic.
In October 2019, the SEC said it formally requested the BSP to consider capping the interest rates and other fees that lending and financing companies may charge on consumer and payday loans, amid the proliferation of predatory and abusive lending practices.
According to the SEC, several lending and financing companies have imposed exorbitant interest rates, fees, and charges on their unsecured, short-term, small-value, and high-cost consumer credit, causing Filipinos to fall into debt traps, according to the corporate regulator.
It added that predatory lending has consequently propagated abusive, unethical and unfair means of collecting debts, as borrowers struggled to pay exorbitant charges on loans.
Current regulations allow lending and financing companies to freely agree with a borrower on the terms and conditions of their loan contract, including the imposable interest rate and other charges such as transaction fees and penalties for late payment, the SEC said.
As part of efforts to tackle predatory and abusive lending, the SEC said it invoked the provisions of Republic Act No. 8556, or the Financing Company Act of 1998, and Republic Act No. 9474, or the Lending Company Regulation Act of 2007, which empower the Monetary Board of the BSP to prescribe maximum interest rates that could be charged by financing and lending companies, in consultation with the commission and the industry, if warranted by prevailing economic and social conditions.
Earlier, the SEC issued Memorandum Circular No. 18, Series of 2019, setting forth the Prohibition of Unfair Debt Collection Practices of Financing and Lending Companies. —LBG, GMA News
SEC drafts guidelines for cap on interest rates, fees of lenders
Source: News Panda Philippines
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