SEC wants to cap financing and lending rates for lending companies

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

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

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

SEC Commissioner Kelvin Lee said the cap for finance and loan companies would likely be higher than the 2% cap on monthly interest rates currently imposed on credit card lenders.

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

Circular BSP

Lee said the SEC was close to settling with BSP the Implementing Rules and Regulations (IRR) and draft memorandum that the SEC would issue based on this BSP circular.

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

Under Section 7 of the Credit Companies Act, a loan company may make loans of a reasonable amount and rate of interest provided the agreement is in accordance with the provisions of the Act on Truth in Lending (Republic Act No. 3765) and Consumer Law of the Philippines (RA 7394). This is so long as the Currency Board, in consultation with the SEC and the industry, “may prescribe such rate of interest as can be justified by prevailing economic and social conditions.”

In recommending caps on interest rates charged by loan companies, the SEC observed that elsewhere in the world such caps also exist. In California, USA, for example, a usury law caps loan rates.

SEC Chairman Emilio Aquino said earlier that the corporate regulator is developing new guidelines to enable lending and finance companies to better meet the needs of borrowers and, at the same time, close the gaps that give rise to abusive and predatory practices.

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

For example, some of the lending apps have access to the contact person list on borrowers’ mobile phone and send shaming text messages to borrowers when they are unable to pay. Some would even wrongly claim that the recipient of the text messages had been appointed by the borrower as guarantor. INQ

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