BSP urged to cap rates on consumer loans and finance companies

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

In an October 8 letter to BSP Governor Benjamin Diokno, SEC Chairman Emilio Aquino cited the power of the Monetary Council, the BSP’s highest governing body, to prescribe interest rates, the maximum fees and other charges that loan companies (LCs) and finance companies (FCs) can charge for consumer and payday loans.

“With LC / FCs charging up to 2.5% interest rate per day on top of other fees and charges, predatory lending continues to be one of the main subjects of complaints the Commission receives from public, ”Aquino noted in the letter. .

“Thus, the Commission respectfully requests the BSP to consider capping the interest rates, fees and other charges that may be imposed by the LCs and the CFs. The proposed ceiling rates will not apply to the entire financial sector, but only to consumer loans and payday loans offered by these companies, ”he said.

Article 7 of Republic Law 9474, or the Loan Company Regulation Law 2007, authorizes LCs to provide loans for amounts and reasonable rates and charges, such as may be agreed with borrowers.

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

Section 5 of Republic Act 8556 or the Finance Companies Act 1998 also empowers the Monetary Council, in consultation with the CF and the SEC, to prescribe the maximum rate (s) of purchase discounts. , rents, fees, services and other charges of the CF.

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

Advocating for the regulation of interest rates charged by loan and finance companies, Aquino noted that other Asian countries such as Japan, Thailand and Myanmar apply rate caps on interest rates. interest on consumer loans.

Aquino also cited the case of the United States, where interest rate regulations vary from state to state.

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

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

As part of efforts to protect borrowers, the SEC recently issued Circular No.18, 2019 series, outlining the prohibition of unfair debt collection practices of CF and LCs.

The SEC also issued Memorandum Circular No. 19, Series of 2019, providing for disclosure requirements on CF and LC advertising and online lending platform reporting.

The SEC, meanwhile, also issued an October 24 cease and desist order against Batis Loan, Happy Credit, Easy Cash, Wahana Credit and Loan Corp., PesoMaMa and Light Kredit, while it continues its crackdown on illegal lenders.

The SEC has previously issued cease and desist orders against 42 other online lending companies for operating without incorporating and obtaining a certificate of registration.

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

They then use this information to demand prompt payment. They texted the borrower’s contacts to inform them of the borrower’s indebtedness and their supposed refusal to pay the amount owed.

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

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