The Monetary Board (MB) has approved the imposition of ceilings on interest rates, penalties, and other fees and charges on small-value, short-term, general purpose, and unsecured loans extended by Lending Companies (LCs), Financing Companies (FCs), and their Online Lending Platforms (OLPs).[1],[2]
The imposition of interest rate ceilings is in accordance with Republic Act (RA) No. 9474 or the Lending Company Regulation Act of 2007 and RA No. 8556 or the Financing Company Act of 1998, which empower the MB to prescribe maximum interest rates that could be charged by LCs, FCs, and their OLPs, in consultation with the Securities and Exchange Commission (SEC) and the industry.
The interest rate ceilings apply to unsecured, general-purpose loans offered by LCs, FCs, and their OLPs, that do not exceed P10,000 and are payable within a period not exceeding four months. These small value, short-term consumer loans are the ones primarily taken out by low-income borrowers.
“In determining the interest rate caps, the Bangko Sentral ng Pilipinas (BSP) sought to maintain a balance between protecting consumers and allowing lending and financing companies to price in credit risks and remain viable,” explained MB Chairman and BSP Governor Benjamin E. Diokno.
In a forthcoming circular, the MB set a nominal interest rate ceiling of 6 percent per month (approximately 0.2 percent per day) for covered loans. Expressed as a percentage of the amount borrowed, this is the interest paid on the loan without considering other fees and charges.
In relation to this, the MB also set a limit on the “effective interest rate” to a maximum of 15 percent per month (approximately 0.5 percent per day). This includes the nominal interest rate as well as applicable charges like processing fees, service fees, notarial fees, handling fees, and verification fees, among others, but excludes fees and penalties for late payment or non-payment.
Moreover, the MB set the ceiling on penalties for late payment or non-payment at 5 percent per month on the outstanding scheduled amount due; and a total cost cap of 100 percent of total amount borrowed (applying to all interest, other fees and charges, and penalties) regardless of the length of time that the loan is outstanding.
The setting of ceilings on covered loans by LCs, FCs, and their OLPs is a time-bound relief measure intended to help low-income borrowers. These caps will be subject to periodic review by the BSP, in consultation with the SEC and the industry.
The SEC, as primary regulator of LCs, FCs, and their OLPs, shall formulate and promulgate the issuance of the implementing rules and regulations within 60 days from the Circular’s effectivity date, as well as enforce compliance of LCs, FCs, and OLPs with the provisions of the same.
The BSP is committed to protecting financial consumers and promoting a conducive environment for lenders such as LCs, FCs, and their OLPs to viably serve the needs of low-income borrowers amid the pandemic.
[1] The definitions, rights, and powers of LCs and FCs shall be based on those provided by the SEC as published on their website https://www.sec.gov.ph/lending-companies-and-financing-companies-2/lending-companies-and-financing-companies/.
[2] Consistent with SEC Memorandum Circular No. 10 series of 2021, OLPs refer to mobile lending applications, websites, and other FinTech-enabled programs or systems where the services and products of FCs and LCs are made available. See https://www.sec.gov.ph/mc-financing-lending-companies/mc-no-10-s-2021moratorium-on-new-online-lending-platforms/.
