BSP urged to cap consumer loan rates of lending, financing firms

The Securities and Exchange Commission has asked the Bangko Sentral ng Pilipinas to cap loan rates charged by lending and financing companies.

In an Oct. 8 letter to BSP Governor Benjamin Diokno, SEC chair Emilio Aquino cited the power of the Monetary Board, the BSP’s highest policy-making body, to prescribe the maximum interest rates, fees and other charges that lending companies (LCs) and financing companies (FCs) may impose on consumer and payday loans.

“With LCs/FCs that charge as much as 2.5 percent interest rate per day on top of other fees and charges, predatory lending continues to be one of the major subjects of complaints that the Commission receives from the public,” Aquino noted in the letter.

“Thus, the Commission respectfully requests the BSP to consider putting a ceiling on the interest rates, charges, and other fees that may be imposed by LCs and FCs. The proposed ceiling rates shall not apply to the whole financial sector, but solely to consumer loans and payday loans that are offered by the said companies,” it said.

Section 7 of Republic Act No. 9474, or the Lending Company Regulation Act of 2007, allows LCs to grant loans in amounts and reasonable rates and charges as may be agreed upon with borrowers.

The same provision, however, provides that the Monetary Board, in consultation with the SEC and the industry, may prescribe such interest rates as may be warranted by prevailing economic and social conditions.

Section 5 of Republic Act No. 8556, or the Financing Company Act of 1998, likewise empowers the Monetary Board, in consultation with FCs and the SEC, to prescribe the maximum rate or rates of purchase discounts, lease rentals, fees, service and other charges of FCs.

At present, a lending or financing company can freely agree with a borrower on the terms and conditions of their loan contract, including the interest rate and other charges such as transaction fees and penalties for late payment, in view of Central Bank of the Philippines Circular No. 902-82. The circular, issued by the Monetary Board in 1982, suspended the country’s usury law.

In making the case for the regulation of interest rates imposed by lending and financing companies, Aquino noted that other countries in Asia such as Japan, Thailand and Myanmar enforce interest rate caps on consumer loans.

Aquino also cited the case of the United States, where regulations on interest rates vary across states.

For instance, annual interest rates on payday loans are capped at 25 percent in New York, 30 percent in New Jersey and 17 percent in Arkansas. Google Play, meanwhile, blocks mobile lending applications imposing annual percentage rates of 36 percent or higher.

Predatory lending has propagated abusive, unethical and unfair means of collecting debts, as borrowers struggle to pay exorbitant charges on loans, the SEC said.

As part of efforts to protect borrowers, the SEC recently issued Memorandum Circular No. 18, Series of 2019, setting forth the prohibition of unfair debt collection practices of FCs and LCs.

The SEC also issued Memorandum Circular No. 19, Series of 2019, providing for the disclosure requirements on advertisements of FCs and LCs and reporting of online lending platforms.

The SEC, meanwhile, has also issued a cease and desist order dated Oct. 24 against Batis Loan, Happy Credit, Easy Cash, Wahana Credit and Loan Corp., PesoMaMa and Light Kredit, as it continues its crackdown on illegal lenders.

The SEC earlier issued cease and desist orders against 42 other online lending firms for operating without incorporating and securing a certificate of registration.

These illegal online lenders typically gain access to personal information stored in borrowers’ mobile phones, including social media accounts, contact numbers and email addresses, through their mobile applications.

They then use such information to exact prompt payment. They would send a text blast to the borrower’s contacts to inform them about the borrower’s indebtedness and his/her supposed refusal to pay the amount due.

In other cases, the borrower would be threatened with legal action or public shaming.