BSP, SEC to set caps on rates and charges

Published December 27, 2021, 3:01 PM

by Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) will work closely with the Securities and Exchange Commission (SEC) to implement the rules on the setting of ceilings on the interest rates, charges and penalties of covered firms.

The BSP has released Circular No. 1133 on the “Ceiling/s on Interest Rates and Other Fees Charged by Lending Companies (LCs), Financing Companies (FCs), and their Online Lending Platforms (OLPs)” which prescribed the caps on the interest rates and other fees of LCs and FCs to take effect on Jan. 3, 2022.

Based on the circular, the BSP said the SEC “as primary regulator of LCs, FCs, and their OLPs, will formulate and promulgate the necessary issuance providing for the rules and regulations implementing the provisions of this circular within 60 business days from the circular’s effectivity date.”

SEC, which has jurisdictions on covered firms, is “responsible for ensuring compliance of LCs, FCs, and their OLPs with the circular provisions and imposing the appropriate penalties and/or actions.”

Based on the circular, the caps on interest rates and other fees are a time-bound relief measure for the unbanked and underserved segment of the population amid the pandemic.

The ceilings on interest rates and other fees for covered loans offered by LCs, FCs, and their OLPs will undergo periodic review by the BSP, in consultation with the SEC and the industry, according to the circular.

The BSP said that as part of the review, the SEC will submit to the BSP a report on the compliance of LCs, FCs, and their OLPs.

A comprehensive impact evaluation report on the effectiveness of the ceilings will also be submitted to the BSP within one year from the effectivity date of the SEC’s issuance of the implementing rules and regulations and every year thereafter, said the BSP.

“The (BSP) is cognizant of the challenging economic environment brought about by the COVID-I9 pandemic that has directly and indirectly affected the paying capacity of borrowers in the unbanked and underserued segment of the population. In this respect, it is the (BSP’s) thrust to provide protection for borrowers from predatory lending, excessive charges, and falling into excessive debt while ensuring continued access to credit,” said the BSP in the circular.

Last week, BSP Governor Benjamin E. Diokno announced the intended ceilings for the short-term, general-purpose and unsecured loans of LCs and FCs not exceeding P10,000 to help low-income borrowers.

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 LCs, FCs and 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.

The BSP also capped the “effective interest rate” to a maximum of 15 percent per month or about 0.5 percent per day.

The 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.

The central bank will also 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.

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 of the BSP to prescribe maximum interest rates that could be charged by LCs, FCs and OLPs in consultation with the SEC.

The borrowing rates for payday and personal loans have increased to 60 percent per year in 2014 and 2015 and to as high as 360 percent from 2016 to 2019. By 2020, the first year of the pandemic, the highest nominal interest rate was 504 percent per annum or 42 percent per month, according to Diokno.