To protect low-income borrowers from predatory lending, the Bangko Sentral ng Pilipinas (BSP) is setting a cap on nominal interest at 6 percent per month or 0.2 percent per day.
BSP Governor Benjamin Diokno said a circular that spells out this and related regulation will be issued soon, along with implementing rules.
The circular will apply to unsecured short-term loans of up to P10,000 for up to four months, extended by lending and financing companies which—along with their online lending platforms—are regulated mainly by the Securities and Exchange Commission (SEC).
The nominal rate is the interest paid on the loan without considering other fees and charges.
Diokno said the Monetary Board (MB) also set a limit on the “effective interest rate” to a maximum of 15 percent per month or about 0.5 percent per day.
The effective interest rate includes the nominal interest rate as well as applicable charges such as processing fees, service fees, notarial fees, handling fees and verification fees. However, this does not include fees and penalties for late payment or nonpayment.
As for this last group of fees, the MB set the ceiling on penalties for late payment or nonpayment at 5 percent per month on the outstanding scheduled amount due.
Also set was a total cost cap of 100 percent of the total amount borrowed—applying to all interest, other fees and charges and penalties—regardless of the length of time that the loan is outstanding.
Citing data from the SEC, the BSP said unsecured, short-term lending in the Philippines accounted for a P35-billion market.
In this segment, nonperforming loans represent 26 percent of total lending and the delinquency rate is 30 percent.
“In determining the interest rate caps, the BSP sought to maintain a balance between protecting consumers and allowing lending and financing companies to price in credit risks and remain viable,” Diokno said in a briefing.