BSP urged to cap rates on payday loans

Published October 28, 2019, 12:00 AM

by manilabulletin_admin

By James A. Loyola

The Securities and Exchange Commission (SEC) has requested the Bangko Sentral ng Pilipinas (BSP) to consider capping the interest rates and other fees charged on consumer and payday loans.

In a letter to BSP Governor Benjamin E. Diokno, SEC Chairperson Emilio B. Aquino cited the power of the central bank’s Monetary Board to prescribe the maximum interest rates, fees and other charges that lending companies (LCs) and financing companies (FCs) may impose.

At present, a lending or financing company can freely agree with a borrower on the terms and conditions of their loan contract, including the imposable interest rate and other charges such as transaction fees and penalties for late payment, in view of Central Bank of the Philippines Circular No. 902-82.

The circular, issued by the Monetary Board in 1982, suspended the country’s usury law under Act No. 2655.

In making the case for the regulation of interest rates imposed by lending and financing companies, Aquino noted that other countries in Asia such as Japan, Thailand and Myanmar enforce interest rate caps on consumer loans.

He also cited the case of the United States, where regulations on interest rates vary across states. For instance, 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 applications imposing annual percentage rates of 36% or higher.

“With LCs/FCs that charge as much as 2.5 percent interest rate per day on top of other fees and charges, predatory lending continues to be one of the major subjects of complaints that the Commission receives from the public,” Aquino said.

He pointed out though that, while the SEC requests the BSP to consider putting a ceiling on the interest rates, charges, and other fees, “the proposed ceiling rates shall not apply to the whole financial sector, but solely to consumer loans and payday loans that are offered by the said companies.”

Predatory lending has propagated abusive, unethical and unfair means of collecting debts, as borrowers struggle to pay exorbitant charges on loans.