Lending rate cap begins next week

Lawrence Agcaoili – The Filipino Star

December 28, 2021 | 00h00

MANILA, Philippines – The prescribed cap on interest rates, fees and other charges for specific loan offerings from loan companies, finance companies and online lending platforms is expected to come into effect on January 3, 2022, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno.

On December 16, the Monetary Council published Resolution 1717 approving the cap on interest rates and other fees charged by loan companies, finance companies and online lending platforms in accordance with the provisions of the law of the Republic 9474 or Loan Company Regulation Act 2007 and RA 8556. or Finance Company Act 1998.

Diokno said these laws empower the Monetary Board to prescribe maximum interest rates that can be charged by loan and finance companies, in consultation with the Securities and Exchange Commission (SEC) and industry, if economic conditions and social policies in force justify it.

The BSP has set a nominal interest rate cap of six percent per month or about 0.2 percent per day for secured loans.

Likewise, the limit on the effective interest rate has been set at a maximum of 15% per month or approximately 0.5% per day. The rate includes the nominal interest rate as well as applicable fees such as processing, service, notary, processing and audit fees, among others, but excludes fees and penalties for late payment or non-payment.

The regulator also set a cap of five percent per month on penalties for late payment or non-payment on the amount due overdue, as well as a total cost cap of 100 percent of the total amount borrowed. This applies to all interest, other fees and charges and penalties, regardless of the period during which the loan is unpaid.

Limits apply to general purpose unsecured loans offered by loan companies, finance companies and online lending platforms, not exceeding P 10,000 and payable within four months.

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

“It is therefore in the country’s interest that the BSP supports an enabling environment for loan companies, finance companies and their online lending platforms, with limited regulatory distortions to maintain the viability of the business operations of the lenders concerned. , thus guaranteeing the continuity of access to credit by the borrowers concerned ”, he declared.

However, Diokno said the central bank is also aware of the difficult economic environment brought on by the pandemic, which has directly and indirectly affected the ability of borrowers to pay in the unbanked and underserved segment of the population.

“In this regard, the goal of the BSP is to protect borrowers against predatory lending, excessive fees and excessive debt while ensuring continued access to credit. Such a balanced approach has been considered by the BSP in determining the cap on interest rates and other fees charged by loan companies, finance companies and their online lending platforms, ”said the head of the BSP.

Data showed that the interest rate charged by loan companies climbed to 360% per year or 30% per month between 2016 and 2019, compared to just 60% per year or 5% between 2014 and 2015.

At the height of the COVID-19 pandemic last year, credit companies again increased the interest rate on loans to 504% per year or 42% per month.

As this policy seeks to alleviate the unbanked and underserved segment of the population, which is most vulnerable amid the pandemic, the Monetary Board prescribes the following applicable caps on interest rates and other charges for covered loans “, said Diokno in Circular 1133.

The SEC received 4,363 letters of complaint about high interest rates and penalties imposed by loan and finance companies between January of last year and May of this year.

The BSP chief stressed that the caps on interest rates and fees are subject to periodic review by the BSP, the SEC and industry, as the initiative is a time-limited relief measure for the government. unbanked and underserved segment of the population in the midst of the pandemic.

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