SEC recalibrates interest rate cap for financing, lending firms

The Securities and Exchange Commission (SEC) is tightening the cap on interest rates and related fees charged by financing and lending companies for specific loans to protect financial consumers, as well as promote the industry’s competitiveness.

The Commission, on December 10, issued SEC Memorandum Circular No. 14, Series of 2025, which provides for the Recalibrated Ceilings on Interest Rates and Other Fees Charged by Financing Companies and Lending Companies.

The SEC adopted the policy in accordance with Section 6(a) of Republic Act No. 11765, or the Financial Products and Services Consumer Protection Act (FCPA), which grants the Commission the authority to determine the reasonableness of the interest charges or fees which a financial service provider may demand, collect, or receive for any service or product offered to a financial consumer.

“The recalibrated interest rate cap offers a balanced and sustainable framework that considers the interests of both lenders and borrowers, consistent with the Commission’s mandate of promoting consumer protection while also ensuring the viability of legitimate financing and lending companies,” SEC Chairperson Francis Lim said.

Lower ceiling for effective interest rates

Under the memorandum circular, the effective interest rate is now capped at 12 percent per month, or about 0.40 percent per day. This rate refers to the total nominal interest paid plus other fees and charges, excluding penalty and late payment fees, expressed as the rate that exactly discounts estimated future cash flows throughout the life of the loan to the net amount of loan proceeds.

The Monetary Board, in consultation with the SEC, previously set the ceiling for effective interest rates at 15 percent per month, or about 0.5 percent per day.

Meanwhile, lending and financing companies may not charge nominal interest rates exceeding six percent per month, equivalent to 0.20 percent per day.

The ceiling for penalties for late and non-payment is fixed at 5 percent per month on the outstanding scheduled amount due, while the total cost cap is set at 100 percent of the total amount borrowed, applying to all interest, other fees, charges, and penalties, regardless of the time the loan has been outstanding.

The recalibrated ceilings shall cover unsecured, general-purpose loans offered by financing and lending companies with principal amounts not exceeding P10,000, and payment terms of up to four months. They shall apply to loans entered into, restructured, or renewed beginning on April 1, 2026.

Stricter penalties

Any attempt to circumvent the interest rate cap through restructuring, repackaging, splitting of loan amounts, recharacterization of fees, shifting of loan tenor, simulated collateral, sham guaranty arrangements, imposition of disguised charges, or any analogous scheme shall constitute a violation of the memorandum circular.

The SEC may impose administrative sanctions against financing and lending companies, as well as their responsible officers, under the Financing Company Act of 1998, the Lending Company Regulation Act of 2007, and the FCPA, for circumventing the interest rate cap. This is without prejudice to the filing of other criminal, civil, and regulatory actions under existing laws and applicable jurisprudence.

Financing and lending companies that fail to comply with the interest rate limits will be meted with an administrative penalty of P50,000 for the first offense.

For the second offense, the SEC may impose a fine equivalent to at least twice the penalty imposed for the first offense, but not more than P1 million, and/or suspend a company’s financing and lending activities for 60 days.

For the third offense, the SEC shall revoke the erring company’s certificate of authority and certificate of incorporation.

The policy on ceilings on interest rates and other fees shall be subject to a periodic review to ensure it remains aligned with changes in law, industry needs, and regulatory requirements.