The Bangko Sentral ng Pilipinas (BSP) will impose ceilings on the lending and financing companies’ interest rates, charges and penalties for short-term, general-purpose and unsecured loans not exceeding P10,000 to help low-income borrowers.
The draft circular is currently being finalized. The BSP plans to implement the ceilings on January 3, 2021.
BSP Governor Benjamin E. Diokno said a nominal interest rate ceiling of six percent per month or about 0.2 percent per day for small-value loans will be implemented for lending and financing companies and their online lending platforms (OLPs).
The interest rate ceilings will apply to unsecured, general-purpose loans that do not exceed P10,000 and are payable within a period not exceeding four months. These small value, short-term consumer loans are the ones primarily taken out by low-income borrowers, said Diokno.
“Expressed as a percentage of the amount borrowed, this is the interest paid on the loan without considering other fees and charges,” he said in an online press briefing on Thursday, Dec. 23.
Diokno said the BSP also capped the “effective interest rate” to a maximum of 15 percent per month or about 0.5 percent per day. He said effective interest rate “includes the nominal interest rate as well as applicable charges such as processing, service, notarial, handling and verification fees, among others, but excludes fees and penalties for late payment or non-payment.”
He also said the central bank will implement a five-percent ceiling on penalties for late payment or non-payment of the outstanding scheduled amount due and a total cost cap of 100 percent of total amount borrowed. This applies to all interest, other fees and charges, and penalties, regardless of the time that the loan is outstanding,” said Diokno.
BSP Director Dennis D. Lapid of the Department of Economic Research said the circular is currently being finalized and it will be issued soon. The ceilings will be reviewed every year.
“The circular is being finalized and the plan is to have it be effective on January 3 (2022). The circular also speficies a periodic review every year,” said Lapid.
Lapid said the BSP will be closely coordinating with the Securities & Exchange Commission (SEC) which has jurisdiction over lending and financing companies. Existing laws empower the BSP’s Monetary Board to set the ceilings on interest rates and charges on all lending or borrowing activities.
He said the SEC will be submitting periodic review of the lending and financing companies to assess the compliance and the impact of the ceilings on their business and the market.
In deciding to implement the ceilings, a survey of the industry was conducted with 42 lending and financing companies participating, with total loan portfolio of P35 billion.
The imposition of interest rate ceilings is in accordance with Republic Act (RA) No. 9474 or the Lending Company Regulation Act of 2007 and RA No. 8556 or the Financing Company Act of 1998, which empower the Monetary Board to prescribe maximum interest rates that could be charged by lending and financing companies and OLPs in consultation with the SEC.
Before the COVID-19 pandemic, the lending and financing companies’ borrowing rates for payday and personal loans have increased to 60 percent per year in 2014 and 2015 to as high as 360 percent from 2016 to 2019, according to Diokno.
“In 2020, these interest rates rose even further. The highest nominal interest rate posted in 2020 was 504 percent per annum (or 42 percent per month),” he said.
From January 2020 to May this year, the SEC has in fact received 4,363 complaints related to high interest rates and penalties from these lenders.
“These complaints prompted the SEC to seek the BSP's help in prescribing interest rate ceilings on financing and lending companies. The imposition of the interest rate ceilings is also in consideration of the hardships brought about by the COVID-19 pandemic,” said Diokno.