The Securities and Exchange Commission (SEC) has issued a circular that caps interest rates and other fees charged by lending and finance companies, and their online lending platforms (OLPs).
SEC Memorandum Circular No. 3, Series of 2022 (SEC MC 3), which will become effective March 3, provides guidelines on the implementation of Bangko Sentral ng Pilipinas Circular No. 1133, Series of 2021 on the interest cap(s) Fees and other fees charged by loan companies, finance companies and their online lending platforms.
The BSP Circular prescribes the maximum interest rates and other fees charged by loan and finance companies, and their PLOs.
The central bank has set the maximum nominal interest rate at 6% per month, or about 0.2% per day, and the effective interest rate (EIR) at 15% per month, or about 0.5% per day. day.
This applies to Covered Loans which are general purpose unsecured loans that do not exceed the amount of P10,000 and have a loan term of up to four months.
The EIR is expressed as the rate that exactly discounts the estimated future cash flows through the term of the loan to the net amount of the loan proceeds.
It includes the nominal interest rate as well as other applicable fees and charges, such as processing fees, service fees, notary fees, processing fees and verification fees, among others. It excludes fees and penalties for late payment and non-payment.
Meanwhile, loan and finance companies can only charge penalties of up to 5% per month for late payment or non-payment of overdue amounts owed.
A total cost cap of 100% of the total amount borrowed, applying to all interest, other fees and charges and penalties, regardless of the term of the loan, will also be imposed.
The cap on interest rates and other fees will apply to covered loans that lending and finance companies offer once the rules come into force on March 3.
All lending and finance companies must submit an impact assessment report by January 15 of each year from 2023.
The Commission will also require all loan and finance companies, whether or not they offer loans covered by the cap, to submit a business plan setting out the company’s loan products and services, as well as the Applicable pricing, SEC MC 3 compliant.
The Monetary Board, which exercises the powers and functions of the BSP, imposed the maximum interest rate and charges on covered loans offered by loan and finance companies, and their PLOs, on the initiative of the DRY.
In October 2019, the SEC formally asked the BSP to consider capping the interest rates and other fees that finance and lending companies can charge on consumer and payday loans, amid the proliferation of predatory and abusive lending practices.
Several lending and finance companies imposed exorbitant interest rates, fees and charges on their unsecured, short-term, low-value and high-cost consumer loans, causing Filipinos to fall into the debt trap.
Predatory lending has consequently propagated abusive, unethical and unfair means of collecting debts, with borrowers struggling to pay exorbitant fees on loans.
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