Philippines: Lending rate cap starts next week

• Dec 28, 2021

MANILA, Philippines — The prescribed ceiling on interest rates,  charges and other fees for specific loan offering by lending firms, financing companies and online lending platforms is set to take effect on Jan. 3, 2022, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno.

Last Dec. 16, the   Monetary Board issued Resolution 1717 approving the cap on interest rates and other fees charged by lending firms, financing companies and online lending platforms pursuant to the provisions of Republic Act 9474 or the Lending Company Regulation Act of 2007 and RA 8556 or the Financing Company Act of 1998.

Diokno said these laws empower the Monetary Board to prescribe maximum interest rates that could be charged by lending and financing companies, in consultation with the Securities and Exchange Commission (SEC) and the industry, if warranted by prevailing economic and social conditions.

The BSP has set a nominal interest rate ceiling of six percent per month or approximately 0.2 percent per day for covered loans.

Likewise, the limit on the effective interest rate was pegged at a maximum of 15 percent per month or approximately 0.5 percent per day. The 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 regulator also set a five percent per month ceiling on penalties for late payment or non-payment on the outstanding scheduled amount due, as well as 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 caps apply to unsecured, general-purpose loans offered by lending firms, financing companies and online lending platforms, not exceeding P10,000, and payable within four months.

Diokno said the regulator recognizes the significant contribution of the industry in promoting access to credit of the unbanked and underserved segment of the population.

“It is therefore in the country’s best interest for the BSP to support an enabling environment for lending firms, financing companies, and their online lending platforms, with limited regulatory distortions to maintain the viability of the business operations of the concerned lenders, thereby ensure continued access to credit by the subject borrowers,” he said.

However, Diokno said the central bank is also cognizant of the challenging economic environment brought about by the   pandemic, which directly and indirectly affected the paying capacity of borrowers in the unbanked and underserved 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. Such a balanced approach was considered by the BSP in the determination of the ceiling on interest rates and other fees charged by lending firms, financing companies, and their online lending platforms,” the BSP chief said.

Data showed the interest rate charged by lending companies soared to 360 percent per annum or 30 percent per month between 2016 and 2019 from only 60 percent per annum or five percent from 2014 and 2015.

During the height of the COVID-19 pandemic last year, lending firms further raised the interest rate on loans to 504 percent per annum or 42 percent per month.

“As this policy aims to provide relief to the unbanked and underserved segment of the population, which are the most vulnerable amid the pandemic, the Monetary Board is prescribing the following applicable ceilings on interest rates, and other fees for covered loan,” Diokno stated through Circular   1133.

The SEC has received 4,363 complaint letters regarding high interest rates and penalties imposed by lending firms and financing companies between January last year and May this year.

The BSP chief pointed out that the ceilings on interest rates and fees is subject to periodic review by the BSP, SEC, and the industry as the initiative is a time-bound relief measure for the unbanked and underserved segment of the population amid the   pandemic.

Source: https://www.philstar.com/business/2021/12/28/2150408/lending-rate-cap-starts-next-week