SEC wants cap on finance, lending firms’ loan rates

The Securities and Exchange Commission (SEC) has proposed to the Bangko Sentral ng Pilipinas (BSP) a cap on lending rates of financing and lending companies, many of which operate online lending platforms, to prevent the charging of unconscionably high rates.

This proposal was made in the same vein as BSP’s prevailing cap on interest rates charged by credit card issuers, and is also in line with the SEC’s crackdown against “abusive” and “predatory” online lending practices.

Last year, the SEC issued a moratorium on the registration of new online lending platforms of financing and lending companies. The SEC is also drafting tighter guidelines for both existing and newly registered financing and lending companies as well as fintech companies that plan to offer credit and related services.

SEC Commissioner Kelvin Lee said the cap for financing and lending firms would likely be higher than the 2 percent cap on monthly interest rates currently imposed on credit card lenders.

“But I will defer to the team working on this for the specifics,” Lee said in a text message.

BSP circular

Lee said the SEC was set to sort out with BSP the implementing rules and regulations (IRR) and the draft memorandum that the SEC would issue based on such BSP circular.

“The rate will follow what the BSP mandated. We are in the process of preparing the IRR based on the BSP circular,” he said.

Under Section 7 of the Lending Company Act, a lending company may grant loans in such amounts and reasonable interest rates provided, that the agreement is in compliance with the provisions of the Truth in Lending Act (Republic Act No. 3765) and Consumer Act of the Philippines (RA 7394). This for as long as the Monetary Board, in consultation with the SEC and the industry, “may prescribe such interest rate as may be warranted by prevailing economic and social conditions.”

In recommending to cap interest rates charged by lending firms, the SEC observed that elsewhere in the world, such caps similarly exist. In California in the United States, for instance, a law against usury caps loan rates.

SEC chair Emilio Aquino earlier said the corporate regulator was currently crafting new guidelines to allow lending and financing companies to better address the needs of borrowers and, at the same time, plug loopholes that give rise to abusive and predatory practices.

As the Philippine economy succumbed to its worst economic recession in 2020 when the COVID-19 erupted, many consumers turned to quick-disbursing loans offered by online lenders. However, some charge unconscionably high rates and resort to abusive collection practices.

For instance, some of the lending apps gain access to the list of contact persons in the borrowers’ mobile phone and send text blasts shaming the borrowers when they are unable to pay. Some would even falsely claim that the recipient of the text blasts had been named by the borrower as a guarantor. INQ