SEC hopes BSP will also cap rates for consumer and payday loans

Published October 2, 2020, 6:00 AM

by James A. Loyola

The Securities and Exchange Commission (SEC) wants the Bangko Sentral to also put a limit on charges for consumer and payday loans offered by lending and financing companies.

 This after the Commission hailed the central bank’s move to put an annual interest rate ceiling of 24 percent on all credit card transactions effective November 3, 2020. 

The new policy also provides that interest rates or finance charges on the unpaid outstanding credit card balance of a cardholder should not exceed 2 percent per month.

“The capping of credit card charges is a timely and much-needed measure to promote responsible lending and ease the financial burden of consumers and micro, small and medium enterprises amid the COVID-19 pandemic,” SEC Chairperson Emilio B. Aquino said.

He added that, “We are hopeful that the Monetary Board will likewise consider soon the Commission’s proposal for similar limits on interest rates, fees and other charges imposed by lending and financing companies on consumer and payday loans, as part of our efforts to put an end to predatory and other abusive lending practices.” 

In October 2019, the SEC asked the Monetary Board, through BSP Governor Benjamin E. Diokno, to consider prescribing a ceiling on interest rates, fees and other charges that lending and financing companies may impose. 

The Commission has since worked closely with the central bank to push for interest rate caps for lending and financing companies, providing the necessary data and studies on the matter.  

Section 7 of Republic Act No. 9474, or the Lending Company Regulation Act of 2007, allows lending companies to grant loans in amounts and reasonable rates and charges as may be agreed upon with borrowers. 

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

Section 5 of Republic Act No. 8556, or the Financing Company Act of 1998, likewise empowers the Monetary Board, in consultation with financing companies and the SEC, to prescribe the maximum rate or rates of purchase discounts, lease rentals, fees, service and other charges of financing companies. 

Lending and financing companies are currently allowed to freely agree with borrowers 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, pursuant to the three-decade-old Central Bank of the Philippines Circular No. 905-82 which suspended the Usury Law. Steep interest rates and penalty charges have been the subject of most of the complaints filed against financing and lending companies.

In this light, the SEC has invoked the Monetary Board’s authority to regulate interest rates imposed on consumer loans and payday loans offered by financing and lending companies.