SEC hails capping of credit card charges, wants consumer and payday loans next

The Securities and Exchange Commission (SEC) has hailed the central bank’s move to cap charges on credit card transactions, raising its hopes that similar limits will soon apply to consumer and payday loans offered by lending and financing companies.

On September 25, the Bangko Sentral ng Pilipinas (BSP) announced that the Monetary Board approved an annual interest rate ceiling of 24% on all credit card transactions effective November 3, 2020.

The new policy also provides that interest rates or finance charges on the unpaid7outstanding credit card balance of a cardholder should not exceed 2% per month.

For credit card installment loans, credit card issuers may only charge monthly add-on rates at 1% maximum. Meanwhile, no other charge or fee may be imposed or collected on credit card cash advances except for a maximum processing fee of P200 per transaction.

“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.

“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.

In the meantime, the Commission continued to implement measures aimed at protecting borrowers.

Last year, the SEC issued Memorandum Circular No. 18, Series of 2019, setting forth the Prohibition of Unfair Debt Collection Practices of Financing Companies and Lending Companies, and SEC Memorandum Circular No. 19, Series of 2019, providing for the Disclosure Requirements on Advertisements of Financing Companies and Lending Companies and Reporting of Online Lending Platforms.

Meanwhile, the SEC has revoked the primary registration of 2,081 companies for engaging in lending and financing activities without the necessary Certificate of Authority (CA) under its ongoing crackdown on illegal lending.

The Commission also issued cease and desist orders against 58 online lending applications for operating without incorporating and securing a CA. More information is available in the Lending and Financing Companies page on the SEC website.