SEC implements cap on lending, financing firms’ interest rates

The Securities and Exchange Commission (SEC) has issued the memorandum circular implementing the cap on interest rates and other fees imposed by lending and financing companies, and their online lending platforms (OLPs).

SEC Memorandum Circular No. 3, Series of 2022 (SEC MC 3), which will take effect on March 3, provides the guidelines on Bangko Sentral ng Pilipinas (BSP) Circular No. 1133, Series of 2021, on the ceiling/s of interest rates and other fees charged by lending companies, financing companies, and their online lending platforms.

The BSP circular prescribes the maximum interest rates and other fees charged by lending and financing companies, and their OLPs.

The central bank fixed the maximum nominal interest rate at 6 percent per month, or about 0.2 percent per day, and the effective interest rate (EIR) at 15 percent per month, or about 0.5 percent per day for covered loans which are unsecured, general-purpose loans that do not exceed the amount of PHP10,000 and with a loan tenor of up to four months.

The EIR is expressed as the rate that exactly discounts estimated future cash flows throughout the life of the loan to the net amount of loan proceeds.

It includes the nominal interest rate along with other applicable fees and charges, such as processing fees, service fees, notarial fees, handling fees, and verification fees, among others. It excludes fees and penalties for late payment and non-payment.

Meanwhile, lending and financing companies may only charge penalties up to 5 percent per month for late payment or non-payment on outstanding scheduled amounts due.

A total cost cap of 100 percent of the total amount borrowed, applying to all interest, other fees and charges, and penalties, regardless of time the loan has been outstanding, will also be imposed.

The cap on interest rates and other fees will apply to covered loans which lending and financing companies will offer once the rules take effect on March 3.

Lending companies, which fail to comply with the rate limits, will be subject to penalties worth PHP25,000 and PHP50,000 for the first and second offense, respectively; while financing companies will be penalized with PHP50,000 for the first offense and PHP100,000 for the second offense.

The penalty for the third offense for both lending and financing companies will amount to twice the amount imposed for the second offense up to PHP1 million; the suspension of their financing and lending activities for 60 days; or the revocation of their certificates of authority to operate as a financing/lending company.