The Bangko Sentral ng Pilipinas (BSP) should look into putting a cap in lending rates and other fees lending and financing companies charge on consumer and payday loans, according to the Securities and Exchange Commission (SEC).
In a letter to BSP governor Benjamin Diokno, SEC chairman Emilio Aquino said the BSP can take a page from the book of other Asian countries like Japan, Thailand and Myanmar which put a cap on interest rates on consumer loans.
This way, the BSP can discourage predatory lending, Aquino said.
“With LCs/FCs (lending companies/financing companies) that charge as much as 2.5 percent interest rate per day on top of other fees and charges, predatory lending continues to be one of the major subjects of complaints that the Commission receives from the public,” Aquino said in his letter.
He also noted the case of the United States where regulations on interest rates vary across states. For instance, annual interest rates on payday loans are capped at 25 percent in New York, 30 percent in New Jersey and 17 percent in Arkansas.
Google Play, meanwhile, blocks mobile lending applications imposing annual percentage rates of 36 percent or higher.
“Thus, the Commission respectfully requests the BSP to consider putting a ceiling on the interest rates, charges, and other fees that may be imposed by LCs and FCs. The proposed ceiling rates shall not apply to the whole financial sector, but solely to consumer loans and payday loans that are offered by the said companies,” Aquino said.
In the letter, Aquino cited the power of the central bank’s Monetary Board to prescribe the maximum interest rates, fees and other charges that LCs and FCs may impose.
Section 7 of Republic Act No. 9474, or the Lending Company Regulation Act of 2007, allows LCs to grant loans in amounts and reasonable rates and charges as may be agreed upon with borrowers.
The same provision, however, provides that the central bank’s Monetary Board, in consultation with the SEC and the industry, may prescribe such interest rate as may be warranted by prevailing economic and social conditions.
Section 5 of Republic Act No. 8556, or the Financing Company Act of 1998, likewise empowers the Monetary Board, in consultation with FCs and the SEC, to prescribe the maximum rate or rates of purchase discounts, lease rentals, fees, service and other charges of FCs.
At present, a lending or financing company can freely agree with a borrower on the terms and conditions of their loan contract, including the imposable interest rate and other charges such as transaction fees and penalties for late payment, in view of Central Bank of the Philippines Circular No. 902-82.
The circular, issued by the Monetary Board in 1982, suspended the country’s usury law under Act No. 2655.