Last March 1, 2022, the Securities and Exchange Commission (“SEC”) issued its Memorandum Circular No. 3 to implement the ceilings previously imposed by the Bangko Sentral ng Pilipinas (the Philippine Central Bank or “BSP”) via BSP Circular No. 1133, series of 2021 on interest rates and other fees imposed by financing companies, lending companies, and their online lending platforms.
1. Which institutions are covered by the ceilings on interest rates and other fees?
The policy covers financing companies, lending companies, and their “online lending platforms.” In general terms, “financing companies” extend credit facilities to consumers and the industrial, commercial or agricultural enterprises, whereas “lending companies” are engaged in granting loans from their own capital funds (or from funds sourced from not more than 19 persons). (For more detailed definitions, see the Financing Company Act and Lending Company Regulation Act). In turn, “online lending platforms” refer to mobile lending applications, websites, and other financial technology-enabled programs or systems through which financing companies’ and lending companies’ services and products are made available.
Notably, banks are not covered by the interest rate and fee ceilings.
2. Which loans are covered by the ceilings on interest rates and other fees?
The prescribed ceilings on interest rates and other fees intend to cover short term, small value, and high-cost consumer credit that target primarily the low-income borrowers. The ceilings apply to unsecured, general-purpose loans, whether obtained through online or traditional/offline distribution channels, offered by lending companies, financing companies, and their online lending platforms, that do not exceed the amount of PhP10,000 and loan tenor of up to four months that are entered into, restructured, or renewed beginning March 3, 2022.
3. What are the applicable ceilings on interest rates and other fees for specific loans offered by lending companies, financing companies, and their online lending platforms?
The following are the applicable ceilings on interest rates and other fees imposed for the covered loans:
a. A nominal interest rate ceiling equivalent to 6 percent per month (~0.2 percent per day).
b. An effective interest rate ceiling equivalent to 15 percent per month (~0.5 percent per day), which shall include the nominal interest rate along with all other applicable fees and charges (i.e., processing fees, service fees, notarial fees, handling fees and verification fees, among others), but excluding fees and penalties for late payment or non-payment.
c. A cap on penalties for late payment or non-payment at 5 percent per month on outstanding scheduled amount due.
d. A total cost cap of 100 percent of total amount borrowed (applying to all interest, other fees and charges, and penalties) regardless of time the loan has been outstanding.
4. What are the reportorial requirements for the covered institutions?
All financing companies and lending companies, whether or not offering loans covered by the ceiling, are required to submit (1) an Impact Evaluation Report, on or before January 15 each year beginning 2023; and (2) a Business Plan, on or before May 5, 2022, indicating the company’s loan products and services as well as the applicable pricing parameters. The Business Plan supersedes the initial Business Plan or Plan of Operation in the Company Information Sheet submitted prior to the issuance of the Certificate of Authority of the lending company/financing company.