Online loans

Interest rate and fee caps for online loans

Dear PAO,

My friend’s partner was a construction worker, but he was fired. They are definitely in a bind as my friend is just a housewife looking after their 3 year old daughter. They thought of taking out a small loan from an online lending company they saw on social media for no more than P10,000, but they are worried about the high interest rate. Are there no regulations for this type of loan, such as a ceiling of some kind?

Shona

Dear Chona,

The Bangko Sentral ng Pilipinas (BSP) Monetary Board has issued Circular 1133, Series of 2021, which provides for a cap on interest rates and other fees charged by Loan Companies (LCs), Finance Companies (FC ), including their respective online loans. Platforms (PLO). This was attempted by the Council in order to address widespread concerns about the high interest rates charged by said companies on their borrowers. Thus, Circular 1133, Series of 2021 was designed as a measure to ensure that borrowers who belong to the unbanked and underserved sector of our society have adequate protection against predatory lending, excessive fees and debt. while ensuring continued access to credit.

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Consistent with the foregoing, the Securities and Exchange Commission (SEC) issued SEC Memorandum Circular 3, Series of 2022 which covers all “general purpose unsecured loans offered by LCs, FCs and their PLOs, which do not exceed the amount of P10,000.00 and a loan term of up to four (4) months which are concluded, restructured or renewed as of March 3, 2022.” (Section 1, id) The Circular also expressly provides for the cap(s) on interest rates and other charges, namely:

“Section 3. Applicable cap(s) on interest rates and other charges for specific loans offered by LCs, FCs and their PLOs. – In accordance with Section 1 of BSP Circular No. 1133, the The following applicable cap(s) on interest rates, and other charges are imposed for Covered Loans:

“1. A nominal interest rate ceiling equivalent to 6% per month (~0.2% per day).

“2. A TIE cap equivalent to 15% per month (~0.5% per day), which will include the nominal interest rate as well as all other applicable fees and charges (i.e. processing, service fees, notary fees, processing fees and verification fees, among others), but excluding late and non-payment fees and penalties.

“3. A ceiling on penalties for late payment or non-payment at 5% per month on the expected amount remaining due.

“4. A total cost cap of 100% of the total amount borrowed (applying to all interest, other fees and charges and penalties) regardless of how long the loan has been outstanding.” (Section 3, ID)

As a corollary, to protect your friend against excessive interest rates if she and/or her resident partner decides to continue to benefit from a loan which must not exceed P10,000, she must take into account the rates and charges mentioned below. above. If the lending or finance company they seek their loan from ultimately charges excessive rates and fees, that company may be fined P50,000 for the finance company or P25,000 for the loan company, for his first offence. For its second offence, the fine is P100,000 for the finance company or P50,000 for the loan company. For the third offense, a fine of at least twice the penalty for the second offense but not more than 1 million pesos and/or suspension of financing and lending activities for a period of 60 days and/or dismissal of the certificate of authorization to operate, as appropriate for each circumstance. Also, the Commission may suspend or revoke the primary registration of the company depending on the seriousness of the offence. (Section 6 (A), SEC MC 3, 2022 series).

We hope we were able to answer your questions. This advice is based solely on the facts you have related and our assessment of them. Our opinion may change when other facts are changed or elaborated.

Editor’s note: Dear PAO is a daily chronicle of the public ministry. Questions for Chef Acosta can be sent to [email protected]