MANILA – The Securities and Exchange Commission (SEC) issued the draft circular that will implement a cap on interest rates and other fees by lending and finance companies, and their online lending platforms (OLPs).
The proposed guidelines, released on January 27 for public comment, will operationalize the Bangko Sentral ng Pilipinas (BSP) Circular Series No. 1133 of 2021, which prescribes the maximum interest rates and other fees charged by loan and finance companies , and their PLOs.
The BSP has set the maximum nominal interest rate at 6% per month, or about 0.2% per day, and the effective interest rate (EIR) at 15% per month, or about 0.5% per day. for covered loans that are unsecured, in general. purpose loans not exceeding the amount of PHP 10,000 and with a loan term of up to four months.
The EIR is expressed as the rate that exactly discounts the estimated future cash flows through the term of the loan to the net amount of the loan proceeds.
It includes the nominal interest rate as well as other applicable fees and charges, such as processing fees, service fees, notary fees, processing fees and verification fees, among others. The EIR excludes fees and penalties for late payment and non-payment.
Loan and finance companies can also only charge up to 5% per month for late payments on outstanding amounts.
A total cost cap of 100% of the total amount borrowed, applying to all interest, other fees and charges and penalties, regardless of the term of the loan, will also be imposed.
According to the draft SEC circular, the cap on interest rates and other fees will apply to covered loans that lending and finance companies offer once the proposed rules take effect.
The SEC has 60 business days from January 3, 2022, the date BSP Circular No. 1133, Series of 2021 became effective, to promulgate rules and regulations implementing the interest rate cap and other fees charged by loan and finance companies, and their PLOs.
Lenders that breach the rate limits will face penalties worth PHP 25,000 and PHP 50,000 for the first and second offense respectively, while finance companies will be penalized with PHP 50,000 for the first offense and PHP 100,000. for the second offence.
The penalty for the third offense for loan and finance companies will be twice the amount imposed for the second offense up to PHP 1 million; suspension of their financing and lending activities for 60 days; or the revocation of their certificates of authorization to operate as a finance/loan (CA) company.
All loan and finance companies must submit an impact assessment report by January 15 of each year following the imposition of the rate caps.
Failure to comply will result in a penalty of PHP 10,000 plus PHP 200 per day for finance companies and PHP 10,000 plus PHP 100 per day for loan companies. The second and third offense will result in the suspension and revocation of their CA respectively.
The impact assessment report will be part of the reports that the SEC will submit to the BSP within one year of the implementation of the cap on interest rates and other fees imposed by loan companies and funding.
PASB, in turn, will consider the reports of the commission when reviewing the policy, which is intended as a time-limited relief measure for the unbanked and underserved segment of the population amid the pandemic. .
The Monetary Board, which exercises the powers and functions of the BSP, imposed the maximum interest rate and charges on covered loans offered by loan and finance companies, and their PLOs, on the initiative of the DRY. (PR)