SEC poised to impose caps on lending rates, penalties

The Securities and Exchange Commission (SEC) has issued the draft memorandum circular prescribing caps on the interest rates and penalties charged by lending and financing companies as well as their online lending platforms, based on local central bank thresholds.

Once finalized, the SEC will impose a nominal interest rate ceiling of 6 percent a month or 0.2 percent a day while the effective interest rate—which will include applicable fees and charges but exclude fees and penalties for late payment and nonpayment—will be capped at 15 percent a month or 0.5 percent a day.

Monthly penalties on late payments will likewise be capped at 5 percent a month on outstanding scheduled amount due.

In addition, lenders can not charge fees, charges and penalties of more than 100 percent of the total amount borrowed regardless of the time the loan has been outstanding, the draft memorandum said.

Based on the draft circular, the caps will apply to unsecured, general-purpose loans of lending and financing companies, as well as their online lending platforms (OLPs), that do not exceed P10,000 with loan tenor of up to four months.

In drafting the circular, the SEC said it was aware that several financing and lending firms, especially those that operate OLPs, “impose exorbitant interest rate, fees, and charges on their unsecured, short-term, small value, and high-cost consumer credit, thereby causing Filipinos, specifically those in the low-income bracket, to fall into debt traps.”

The draft circular also imposes penalties on lenders that will violate its provisions.

In cases of violation of the interest rate caps, for instance, the SEC will impose a first offense penalty of P50,000 on financing companies and P25,000 on lending companies. For second offense, the penalties will increase to P100,000 for financing companies and P50,000 for lending companies.

Depending on the gravity of the offense, the third will trigger a penalty of up to P1 million but not less than twice the penalty incurred on the second offense. It may also result in a suspension or even revocation of the certificate of authority to operate as a financing or lending company.